SEC Filing | Trip.com Group Limited

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CTRIP.COM INTERNATIONAL, LTD.

As filed with the Securities and Exchange Commission on November 25, 2003

Registration No. 333-110455

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

AMENDMENT NO. 1 TO

FORM F-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

CTRIP.COM INTERNATIONAL, LTD.

(Exact name of registrant as specified in its charter)

Not Applicable

(Translation of Registrant’s name into English)


Cayman Islands (State or other jurisdiction of incorporation or organization)		7389 (Primary Standard Industrial Classification Code Number)		Not Applicable (I.R.S. Employer Identification Number)

3F, Building 63-64

No. 421 Hong Cao Road

Shanghai 200233, People’s Republic of China

(8621) 3406-4880

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

CT Corporation System

111 Eighth Avenue

New York, New York 10011

(212) 664-1666

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:


David T. Zhang, Esq. John A. Otoshi, Esq. Latham & Watkins LLP 20th Floor, Standard Chartered Bank Building 4 Des Voeux Road Central, Hong Kong S.A.R., China (852) 2522-7886		Chris K. H. Lin, Esq. Simpson Thacher & Bartlett LLP 7th Floor, Asia Pacific Finance Tower 3 Garden Road Central, Hong Kong S.A.R., China (852) 2514-7600

Approximate date of commencement of proposed sale to the public:

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. o

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. o

CALCULATION OF REGISTRATION FEE






		Proposed Maximum	Proposed Maximum
Title of Each Class of	Amount to be	Offering Price Per	Aggregate Offering	Amount of
Securities to be Registered	Registered(1)(2)	Ordinary Share(1)	Price(1)	Registration Fee


Ordinary Shares, par value US$0.01 per share(3)	9,400,000	$8.00	$75,200,000	$6,084(4)


(1)	Estimated solely for the purpose of determining the amount of the registration fee in accordance with Rule 457 under the Securities Act of 1933.

(2)	Includes ordinary shares initially offered and sold outside the United States that may be resold from time to time in the United States either as part of their distribution or within 40 days after the later of the effective date of this registration statement and the date the shares are first bona fide offered to the public.


(3)	American depositary shares issuable upon deposit of the ordinary shares registered hereby have been registered under a separate registration statement on Form F-6. Each American depositary share represents two ordinary shares.



(4)	Registrant paid the registration fee in full on November 12, 2003.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to such Section 8(a), may determine.

The information in this prospectus is not complete and may be changed. Neither we nor the selling shareholders may sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

Subject to Completion

Preliminary Prospectus dated November 25, 2003

PROSPECTUS

4,200,000 American Depositary Shares

(CTRIP LOGO)

Ctrip.com International, Ltd.

Representing 8,400,000 Ordinary Shares

This is Ctrip’s initial public offering. Ctrip is offering 2,700,000 American Depositary Shares, or ADSs, and the selling shareholders included in this prospectus are offering an additional 1,500,000 ADSs. Each ADS represents two ordinary shares. We and the selling shareholders are offering 2,100,000 ADSs in the U.S. and 2,100,000 ADSs outside the U.S.

We expect the public offering price to be between US$14.0 and US$16.0 per ADS. Currently, no public market exists for the ADSs or our ordinary shares. After pricing of the offering, we expect that the ADSs will be quoted on the Nasdaq National Market under the symbol “CTRP.”

Investing in the ADSs involves risks that are described in the “Risk Factors” section beginning on page 11 of this prospectus.


	Per ADS	Total

Public offering price	US$	US$
Underwriting discount	US$	US$
Proceeds, before expenses, to Ctrip	US$	US$
Proceeds, before expenses, to the selling shareholders	US$	US$

The U.S. underwriters may also purchase up to an additional 250,000 ADSs from the selling shareholders at the public offering price, less the underwriting discount, within 30 days from the date of this prospectus to cover overallotments. The international managers may similarly purchase up to an additional 250,000 ADSs from the selling shareholders.

Neither the Securities and Exchange Commission nor any state securities regulators has approved or disapproved these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The ADSs will be ready for delivery on or about , 2003.

Merrill Lynch & Co.


U.S. Bancorp Piper Jaffray	SoundView Technology Group

The date of this prospectus is , 2003.

TABLE OF CONTENTS


	Page

Prospectus Summary		1
Risk Factors		11
Special Note Regarding Forward-Looking Statements		25
Use of Proceeds		26
Dividend Policy		27
Capitalization		28
Dilution		29
Exchange Rate Information		30
Enforceability of Civil Liabilities		31
Selected Consolidated Financial Data		33
Management’s Discussion and Analysis of Financial Condition and Results of Operations		35
Business		53
Chinese Government Regulations		67
Management		70
Principal and Selling Shareholders		76
Related Party Transactions		80
Description of Share Capital		85
Description of American Depositary Shares		90
Shares Eligible for Future Sale		97
Taxation		99
Underwriting		104
Legal Matters		108
Experts		108
Where You Can Find Additional Information		108
Index to Consolidated Financial Statements		F-1

You should rely only on the information contained in this prospectus. Neither we nor the selling shareholders nor the underwriters have authorized any person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. Neither we nor the selling shareholders nor the underwriters are making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover of this prospectus. Our business, financial condition, results of operations and prospects may have changed since that date.

Unless otherwise indicated, (1) the terms “we,” “us,” “our company,” “our” and “Ctrip” refer to Ctrip.com International, Ltd., its predecessor entities and subsidiaries, and, in the context of describing our operations, also include our affiliated Chinese entities, (2) “shares” and “ordinary shares” refer to our ordinary shares, “preferred shares” refers to our convertible preferred shares, “ADSs” refers to our American depositary shares, each of which represents two ordinary shares, and “ADRs” refers to the American depositary receipts which evidence our ADSs, (3) “China” refers to the People’s Republic of China, excluding Taiwan, Hong Kong and Macau, and (4) all references to “RMB” are to the legal currency of China and all references to “U.S. dollars,” “dollars” and “US$” are to the legal currency of the United States. Information in this prospectus assumes that the underwriters do not exercise their overallotment options to purchase up to 500,000 additional ADSs. All numbers discussed in this prospectus are approximated to the closest round number.

PROSPECTUS SUMMARY

This summary highlights key aspects of the information contained elsewhere in this prospectus. Because it is a summary, it does not contain all of the information that you should consider before making an investment decision. You should read the entire prospectus carefully, including the “Risk Factors” section and the financial statements and the accompanying notes to those statements. The statistics relating to the Chinese travel industry and economy included in this prospectus are derived from various government and institute research publications. We have not independently verified such information and you should not unduly rely upon it.

Ctrip.com International, Ltd.

Our Company

We are a leading consolidator of hotel accommodations and airline tickets in China. We aggregate information on hotels and flights and enable our customers to make informed and cost-effective hotel and flight bookings. Since commencing operations in 1999, we have become one of the best-known travel brands in China. We pioneered the development of a reservation and fulfillment infrastructure that enables our customers to:


	•	choose and reserve hotel rooms in cities throughout China and selected cities abroad;

	•	book and purchase airline tickets for domestic and international flights originating from China; and

	•	choose and reserve packaged tours that include transportation, accommodation, and sometimes guided tours as well.

We target our services primarily at business and leisure travelers in China who do not travel in groups. This type of travelers, who are referred to in the travel industry as FITs and whom we refer to as independent travelers in this prospectus, form a traditionally under-served yet fast-growing segment of the China travel market. We act as agent in substantially all of our transactions and generally do not take any inventory risks with respect to the hotel rooms and airline tickets booked through us. We derive our hotel reservation, air-ticketing and packaged-tour revenues through commissions from our travel suppliers, primarily based on the transaction value of the rooms, airline tickets and packaged-tour products, respectively, booked through our services.

For the nine months ended September 30, 2003, we derived 85.8% of our revenues from the hotel reservation business and 10.5% of our revenues from our air-ticketing business. Our packaged-tour business contributed 1.6% of our revenues for the nine months ended September 30, 2003.

We believe that we are the largest consolidator of hotel accommodations in China in terms of the number of room nights booked. In October 2003, we booked approximately 300,000 hotel room nights. As of October 31, 2003, we had secured room supply relationships with over 1,700 hotels in China and over 450 hotels abroad, which cover a broad range in terms of price and geographical location. The quality and depth of our hotel supplier network enable us to offer our customers a wide selection of hotel accommodations, often at significant discounts to published rates. We believe our ability to offer reservations at highly rated hotels is particularly appealing to our customers. Revenues from our bookings for three-, four- and five-star hotels comprised approximately 95.0% of our revenues from our hotel reservation business for the nine months ended September 30, 2003.

We believe that we are also one of the leading consolidators of airline tickets in Beijing and Shanghai in terms of the number of airline tickets booked and sold. We sold approximately 70,000 tickets nationwide in October 2003. Our airline ticket suppliers include all major Chinese airlines and many international airlines that operate flights originating from China. We also believe we are the only airline ticket consolidator in China with a centralized reservation system and ticket fulfilment infrastructure covering all of the economically prosperous regions of China. Our customers can make flight reservations on their chosen routes and arrange

ticket payment and delivery through our ticketing offices and third-party agencies located in over 25 major cities in China.

We offer our services to customers through an advanced transaction and service platform consisting of our centralized toll-free, 24-hour customer service center and bilingual websites. For the nine months ended September 30, 2003, transactions effected through our customer service center accounted for approximately 70% of our transaction volume, while our websites accounted for the balance.

We have experienced significant growth since our inception in June 1999. Beginning in the first half of 2002, we have achieved and maintained positive net income. Our revenues have increased from RMB6.9 million in 2000 to RMB105.3 million (US$12.7 million) in 2002. For the nine months ended September 30, 2003, we generated revenues of RMB111.3 million (US$13.4 million) and net income of RMB29.2 million (US$3.5 million) despite the outbreak of the Severe Acute Respiratory Syndrome, or SARS, during the second quarter of 2003.

Our Opportunity

The Chinese travel industry is large and growing rapidly. The following chart contains certain data from CEIC Data Company Limited concerning the Chinese economy and the travel industry during the period from 1998 through 2002.


					Number of		Number of
	Nominal Gross		Expenditure on		3-, 4- and 5-Star		Civil Aviation
	Domestic Product		Tourism		Hotels in Operation		Passenger Kilometers

	(in billions of RMB)		(in millions of RMB)				(in billions)
1998		7,835		239,118		1,325		80,024
1999		8,207		283,192		1,573		85,728
2000		8,947		317,554		2,368		97,054
2001		9,731		352,237		2,857		109,135
2002		10,479		387,836		3,656		126,870

China’s gross domestic product grew at a compound annual growth rate of 7.5% from 1998 to 2002. The aggregate expenditure on tourism in China increased at a compound annual growth rate of 12.8% during this period. According to China’s tenth five-year plan, the Chinese government expects an approximately 7% compound annual growth rate of China’s gross domestic product from 2000 to 2005. We anticipate that demand for travel services in China will continue to increase substantially in the foreseeable future as the Chinese economy continues to grow.

Even as the rapid growth of the Chinese economy in the past decade has led to a significant increase in the demand for travel services, the travel intermediary businesses are highly fragmented in China, and travel agencies often focus on tour groups. Thus, independent travelers have limited access to discounted rates or comprehensive information on hotels and flights.

Travel consolidators like us are able to offer information aggregated from various hotels and airlines to independent travelers, enabling them to make informed and cost-effective hotel and flight bookings through customer service centers or websites. Call centers or customer service centers allow travelers to gather and evaluate travel information, receive recommendations from customer service representatives and book transactions more efficiently by contacting customer service centers any time, day or night. Competitive labor costs in China have allowed customer service centers to become a cost-effective transaction tool in China. Furthermore, we believe that the travel industry, which inherently involves broadly dispersed travelers as well as a wide selection of travel suppliers in terms of location and price, is also well-suited to benefit from the increasing Internet and online commerce adoption in China, as the Internet’s broadly distributed and easily accessible environment creates the ideal foundation for new marketplaces.

Our Strengths and Challenges

We bridge the gap between independent travelers and travel suppliers. Through our transaction and service platform consisting of our centralized toll-free, 24-hour customer service center and bilingual websites, we serve primarily the traditionally under-served yet growing independent travelers segment in China by helping these travelers plan and book their trips while helping travel suppliers such as hotels and airlines improve the efficiency of their marketing and distribution channel. We have achieved a leading position, in part, by establishing the following competitive strengths:


	•	a leading travel brand in China;

	•	large supplier network and nationwide coverage;

	•	scalable platform and flexible cost structure;

	•	excellent customer service;

	•	advanced infrastructure and technology; and

	•	experienced management team.

We expect to face challenges in our business operations, including:


	•	our limited operating experience as a travel consolidator;

	•	the risk of declines or disruptions in the travel industry;

	•	the risk of recurrence of SARS;

	•	the risk of failure to increase our brand recognition;

	•	the risk of damage to or interruption of our infrastructure; and

	•	the risk of failure to maintain existing, or establish similar new, arrangements with travel suppliers.

Our Strategy

Our goal is to create long-term shareholder value by enhancing our position as a leading hotel and airline ticket consolidator in China. We believe that China’s currently highly fragmented travel industry and under-served independent travelers have provided us with tremendous growth opportunities. We intend to pursue the following strategies to achieve our goal:



	•	leverage the Ctrip brand to attract new travel suppliers and negotiate more favorable contractual terms with our existing suppliers, and strengthen the Ctrip brand by continuing to pursue a focused marketing and advertising campaign;


	•	expand our hotel supplier network and room inventory, primarily through focusing the expansion on hotels with three-, four- and five-star ratings and continuing to pursue guaranteed allotment arrangements with our hotel suppliers;

	•	expand air-ticketing and other travel product offerings, primarily through establishing airline ticket issuance and delivery infrastructure in more cities throughout China and further promoting the packaged-tour products that we offer;

	•	enhance transaction and service platform, primarily through continuing to invest in the training of our customer service representatives and upgrading of our information technology systems underlying our customer service center and websites;

	•	pursue selective strategic acquisitions and expand into Hong Kong, Macau and Taiwan, through exploring acquisitions that would allow us to expand the reach and scope of our travel products and services as well as our customer base in China, Hong Kong, Macau and Taiwan; and


	•	expand into the merchant business, through gradually establishing merchant business relationships with some of our travel suppliers.

Corporate Information

We were incorporated in the Cayman Islands. Since commencing operations in 1999, we have conducted substantially all of our operations in China. We maintain our operational headquarters in Shanghai, and have regional offices in Beijing, Guangzhou, Shenzhen and Hong Kong. We also maintain a network of sales offices in about 30 cities in China. The existing institutional shareholders owning more than 5% of our company include Carlyle Asia Venture Partners I, L.P., IDG Technology Venture Investments, Inc., Tiger Technology Private Investment Partners, L.P. and S.I. Technology Venture Capital Limited.

Our principal executive offices are located at 3F, Building 63-64, No. 421 Hong Cao Road, Shanghai 200233, People’s Republic of China, and our telephone number is (8621) 3406-4880. Our principal website address is www.ctrip.com. The information on our websites is not part of this prospectus.

Corporate Structure

The following diagram illustrates our company’s organizational structure, and the place of formation, ownership interest and affiliation of each of our subsidiaries and affiliated entities.

(CTRIPORG CHART)

We conduct substantially all of our business through our wholly owned subsidiaries in China, namely, Ctrip Computer Technology (Shanghai) Co., Ltd., or Ctrip Computer Technology, and Ctrip Travel Information Technology (Shanghai) Co., Ltd., or Ctrip Travel Information. Due to the current restrictions on foreign ownership of the air-ticketing, travel agency, advertising and Internet content provision businesses in China, we conduct a small part of our operations in these businesses through a series of contractual arrangements with our affiliated Chinese entities. These entities include:


	•	Shanghai Ctrip Commerce Co., Ltd., or Ctrip Commerce, which holds advertising and Internet content provision licenses;

	•	Shanghai Huacheng Southwest Travel Agency Co., Ltd., or Shanghai Huacheng, which holds domestic travel agency and air-ticketing licenses;

	•	Beijing Chenhao Xinye Air-Ticketing Service Co., Ltd., or Beijing Chenhao, which holds an air-ticketing license;

	•	Guangzhou Guangcheng Commercial Service Co., Ltd., or Guangzhou Guangcheng, which has recently received an air-ticketing license; and

	•	Shanghai Cuiming International Travel Agency Co., Ltd., or Shanghai Cuiming, which holds a license to conduct both cross-border and domestic packaged-tour businesses.

Qi Ji, who is a co-founder and director of our company, Min Fan, who is a co-founder and executive vice president of our company, and Alex Nanyan Zheng, who is a vice president of our company, are principal owners of our affiliated Chinese entities. We have made interest-free loans to Qi Ji, Min Fan and Alex Nanyan Zheng solely in connection with the capitalization or acquisition of our affiliated entities. Each of these loans will mature ten years after the date of the applicable loan agreement. In the event that the Chinese government lifts its restrictions on foreign ownership of the air-ticketing, travel agency, advertising or Internet content provision business in China, we will exercise our right to purchase all of the outstanding equity interests of our affiliated Chinese entities immediately, and the loans will be cancelled in connection with such purchase. For a detailed description of the terms of these loans, see “Related Party Transactions — Arrangements with Affiliated Chinese Entities.”

We formed Home Inns & Hotels Management (Hong Kong) Limited, or Home Inns, in 2001 to expand our business line to include the hotel management service. Through a series of subsequent transactions, we reduced our interest in Home Inns to 31.16%. We spun off our remaining interest in Home Inns in August 2003 to prepare for the offering to enable us to focus on our core business of travel consolidation.

The Offering


American Depositary Shares offered:
By Ctrip:

U.S. offering		1,350,000 ADSs


International offering		1,350,000 ADSs


Total:		2,700,000 ADSs


By the selling shareholders:

U.S. offering		750,000 ADSs


International offering		750,000 ADSs


Total:		1,500,000 ADSs



The ADSs		Each ADS represents two ordinary shares, par value US$0.01 per share. The ADSs will be evidenced by American Depositary Receipts, or ADRs. As an ADR holder, we will not treat you as one of our shareholders. The depositary will be the holder of the shares underlying your ADSs. You will have ADR holder rights as provided in the deposit agreement. Under the deposit agreement, you may instruct the depositary to vote the shares underlying your ADSs but only if we ask the depositary to ask for your instructions. You must pay US$5.00 (or less) per 100 ADSs or less for each issuance or cancellation of an ADS, a fee for each distribution of securities by the depositary based on the number of shares deposited for issuance of ADSs, US$0.02 (or less) per ADS per year for depositary services, fees for transfer and registration of your shares, and any expenses incurred by the depositary as necessary. You may turn in your ADRs at the depositary’s office and the depositary will deliver the deliverable shares underlying your ADRs to you. If we offer holders of our ordinary shares any rights to subscribe for additional shares or any other rights, the depositary may make these rights available to you. However, U.S. securities laws may restrict the sale, deposit, cancellation and transfer of the ADSs issued after exercise of these rights. To better understand the terms of the ADSs, you should carefully read the section in this prospectus entitled “Description of American Depositary Shares.” We also encourage you to read the deposit agreement, which is an exhibit to the registration statement that includes this prospectus. We may amend or terminate the deposit agreement for any reason without your consent. If an amendment becomes effective, you are considered, by continuing to hold your ADSs, to agree to be bound by the deposit agreement as amended.



ADSs outstanding after the offering		4,200,000 ADSs.



Ordinary shares outstanding after the offering		30,030,894 ordinary shares, excluding outstanding stock options to purchase an aggregate of 1,535,760 ordinary shares at an exercise price of US$0.7716 per ordinary share and outstanding stock options to purchase additional 711,660 ordinary shares at an exercise price of US$2.11 per ordinary share, 50,000 ordinary shares at an exercise price of US$5.00 per ordinary share, 80,000 ordinary shares at an exercise price of US$6.00 per ordinary share, 103,980 ordinary shares at an exercise price equal to 80% of the



		midpoint of the filing range, and 35,000 ordinary shares at an exercise price equal to 90% of the midpoint of the filing range.



Dividends and other distributions		The depositary agrees to pay to you the cash dividends or other distributions it receives on shares or other deposited securities after deducting its fees and expenses. The depositary will convert any cash dividend or other cash distribution we pay on the shares into U.S. dollars, if it can do so on a reasonable basis and can transfer the U.S. dollars to the United States. The depositary may send to you anything else we distribute on deposited securities by means it thinks legal, fair and practical. If it cannot make the distribution that way, the depositary may decide to sell what we distributed and distribute the net proceeds in the same as it does with cash or hold what we distributed.



Use of proceeds		We may use the net proceeds from this offering as follows: (i) up to US$3.0 million to fund working capital; (ii) up to US$5.0 million to fund capital expenditures, including technology upgrades; (iii) up to US$5.0 million to expand our sales and marketing efforts; and (iv) the balance for general corporate purposes, including funding possible acquisitions of complementary businesses, although we are not currently negotiating any such transactions.


		We will not receive any of the proceeds from the sale of ADSs by the selling shareholders.

Risk factors		See “Risk Factors” and other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in the ADSs.

Proposed Nasdaq National Market symbol		CTRP.

Depositary		The Bank of New York.

Summary Consolidated Financial Data

You should read the following information with our consolidated financial statements and related notes, “Selected Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.

The summary consolidated statement of operations data for 2001 and 2002 and the nine months ended September 30, 2003, and the consolidated balance sheet data as of December 31, 2001 and 2002 and September 30, 2003, are derived from our audited consolidated financial statements included elsewhere in this prospectus and should be read in conjunction with, and are qualified in their entirety by reference to, these consolidated financial statements and related notes. These consolidated financial statements have been audited by PricewaterhouseCoopers and were prepared in accordance with generally accepted accounting principals in the United States, or U.S. GAAP. The summary consolidated statement of operations data for 2000 and the nine months ended September 30, 2002, and the consolidated balance sheet data as of December 31, 2000 and September 30, 2002, set forth below are derived from our unaudited consolidated financial statements included elsewhere in this prospectus and should be read in conjunction with, and are qualified in their entirety by reference to, these unaudited consolidated financial statements and related notes. We have prepared the unaudited information on the same basis as the audited consolidated financial statements, and have included, in our opinion, all adjustments, consisting only of normal and recurring adjustments that we consider necessary for a fair presentation of the financial information set forth in those statements.



			Year Ended December 31,												Nine Months Ended September 30,

			2000			2001			2002			2002			2002			2003			2003

			RMB			RMB			RMB			US$(2)			RMB			RMB			US$(2)
			(unaudited)												(unaudited)

			(in thousands, except for share and per share data)
Consolidated Statements of Operation Data:
	Net revenues			6,453			43,984			100,049			12,087			68,809			105,717			12,772
	Costs of services			(1,950	)		(7,940	)		(13,673	)		(1,652	)		(9,100	)		(14,447	)		(1,745	)
	Gross profit			4,503			36,044			86,376			10,435			59,709			91,270			11,027
	Operating expenses			(36,243	)		(55,696	)		(63,106	)		(7,624	)		(45,379	)		(55,384	)		(6,691	)
	Income (loss) from operations			(31,740	)		(19,652	)		23,270			2,811			14,330			35,886			4,336
	Net income (loss)			(23,977	)		(15,261	)		14,193			1,715			8,456			29,192			3,527
Earnings per Share Data:
	Accretion for Series B preferred shares			(2,196	)		(14,316	)		(16,492	)		(1,993	)		(12,140	)		(12,366	)		(1,494	)
	Cash dividends to holders of Series A and Series B preferred shares			—			—			(16,762	)		(2,025	)		—			—			—
	Deemed dividends to holders of Series A and Series B preferred shares for spin-off of joint venture companies(3)			—			—			—			—			—			(2,829	)		(342	)
	Deemed dividends upon repurchase of Series A and Series B preferred shares			—			—			—			—			—			(35,336	)		(4,269	)
	Net loss attributable to ordinary shareholders			(26,173	)		(29,578	)		(19,061	)		(2,303	)		(3,684	)		(21,339	)		(2,578	)
	Loss per share:
		basic and diluted		(3.03	)		(3.26	)		(2.00	)		(0.24	)		(0.39	)		(2.26	)		(0.27	)
	Loss per ADS(1):
		basic and diluted		(6.06	)		(6.52	)		(4.00	)		(0.48	)		(0.78	)		(4.52	)		(0.54	)



								As of September 30, 2003

		As of December 31,
		2002						Actual				As adjusted(4)

		RMB			US$(2)			RMB		US$(2)		RMB		US$(2)

												(unaudited)

		(in thousands)
Consolidated Balance Sheet Data:
	Cash		38,931			4,703			70,353		8,500		369,984		44,700
	Total assets		97,255			11,750			151,999		18,364		451,630		54,564
	Series B preferred shares(5)		124,963			15,097			—		—		—		—
	Total shareholders’ equity (deficit)		(41,629	)		(5,029	)		109,032		13,173		408,663		49,373



(1)	Each ADS represents two ordinary shares.


(2)	Translations from RMB amounts into U.S. dollars were made at a rate of RMB8.2771 to U.S.$1.00. See “Exchange Rate Information.”

(3)	On August 27, 2003, we resolved to distribute all of our equity interest in Home Inns to the then existing holders of our ordinary shares and Series A and Series B preferred shares on a pro rata as-converted basis based on the carrying value of the equity interest in the amounts of RMB1,782,559, RMB808,827 and RMB2,020,237, respectively.


(4)	As adjusted to reflect the conversion of all of our preferred shares into ordinary shares, which will occur automatically immediately prior to the closing of this offering, and the issuance and sale of 2,700,000 ADSs offered hereby with estimated net proceeds of US$36.2 million, after deducting underwriting discounts, commissions and estimated offering expenses.



(5)	Prior to the forfeiture of the redemption feature in September 2003, Series B preferred shares were not included as part of shareholders’ equity as such shares were redeemable at the option of the holder. As of September 30, 2003, Series B preferred shares are included in total shareholders’ equity (deficit).

RISK FACTORS

Investing in our ADSs involves a high degree of risk. You should carefully consider the risks described below, together with the other information contained in this prospectus before making an investment decision. The risks described below are not the only ones facing our company. Additional risks not presently known to us or that we currently deem immaterial may also impair our business operations. Our business, financial condition or results of operations could be materially adversely affected by any of these risks. The trading price of our ADSs could decline due to any of these risks and you may lose all or part of your investment.

Risks Related to Our Company

Our limited operating history makes evaluating our business and prospects difficult.

We began our operations in 1999. As a result, we have a limited operating history for you to evaluate our business. It is also difficult to evaluate our prospective business, because we may not have sufficient experience to address the risks frequently encountered by early stage companies using new and unproven business models and entering new and rapidly evolving markets, including markets for online commerce and frequent independent travelers. These risks include our potential failure to:


	•	obtain new customers at reasonable cost, retain existing customers, encourage repeat purchases or convert visitors to our websites into customers;

	•	increase awareness of the Ctrip brand and continue to build user loyalty;

	•	retain existing hotels, airlines and other suppliers of travel services or expand our service offerings on satisfactory terms from our travel suppliers;

	•	adequately and efficiently operate, upgrade and develop the systems that we use to process customers’ reservations;

	•	maintain adequate control of our expenses;

	•	attract and retain qualified personnel;

	•	respond to technological changes; or

	•	respond to competitive market conditions.

If we are unsuccessful in addressing any of these risks, our business will be materially adversely affected.

We have sustained losses in the past and may experience earnings declines or net losses in the future.

We sustained net losses in the periods prior to 2002. We cannot assure you that we can sustain profitability or avoid net losses in the future. We expect that our operating expenses will increase and the degree of increase in these expenses will be largely based on anticipated organizational growth and revenue trends. As a result, any decrease or delay in generating additional sales volume and revenue could result in substantial operating losses.

Declines or disruptions in the travel industry generally could reduce our revenue.

A large part of our business is currently driven by the trends that occur in the travel industry in China, including the hotel, airline and packaged-tour industries. As the travel industry is highly sensitive to business and personal discretionary spending levels, it tends to decline during general economic downturns. In addition, other adverse trends or events that tend to reduce travel and are likely to reduce our revenues include:


	•	a recurrence of SARS or any other serious contagious diseases;

	•	increased prices in the hotel, airline, or other travel-related industries;


	•	increased occurrence of travel-related accidents;

	•	poor weather conditions; and

	•	natural disasters.

We could be severely affected by changes in the travel industry and will, in many cases, have little or no control over those changes.

The recurrence of SARS may materially and adversely affect our business and operating results.

In early 2003, several economies in Asia, including Hong Kong and China, were affected by the outbreak of SARS. The travel industry in China, Hong Kong and some other parts of Asia suffered tremendously as a result of the outbreak of SARS. Although none of our employees was infected with SARS, our business and operating results were adversely affected. Total room nights booked through us decreased from 131,426 and 122,716 in May 2002 and June 2002, respectively, to 36,894 and 109,751 in May 2003 and June 2003, respectively.

If there is a recurrence of an outbreak of SARS, it may adversely affect our business and operating results. For example, a future SARS outbreak could result in quarantines or closures to our customer service center in Shanghai if our employees are infected with SARS. In addition, ongoing concerns regarding SARS, particularly its effect on travel, could negatively impact our China-based customers’ desire to travel. If there is a recurrence of an outbreak of SARS, travel to and from SARS-affected regions could be curtailed. Continued or additional restrictions on travel to and from these and other regions on account of SARS could have a material adverse effect on our business, results of operations and financial condition.

Our business may be harmed if our infrastructure and technology are damaged or otherwise fail or become obsolete.

Our customer service center and substantially all of our computer and communications systems are located at a single facility in Shanghai and are therefore vulnerable to damage or interruption from human error, computer viruses, fire, flood, power loss, telecommunications failure, physical or electronic break-ins, sabotage, vandalism, natural disasters and similar events. We currently do not have redundant systems and do not carry business interruption insurance to compensate us for losses that may occur.

We use an internally developed booking software system that supports nearly all aspects of our booking transactions. Our business may be harmed if we are unable to upgrade our systems and infrastructure fast enough to accommodate future traffic levels, or to avoid obsolescence, or successfully integrate any newly developed or purchased technology with our existing system. Capacity constraints could cause unanticipated system disruptions, slower response times, poor customer service, impaired quality and speed of reservations and confirmations, and delays in reporting accurate financial and operating information. These factors could cause us to lose customers and suppliers.

If we are unable to maintain existing, and establish new, arrangements with hotel suppliers similar to those we currently have, our business may suffer.

If we are unable to maintain satisfactory relationships with our existing hotel suppliers, or if our hotel suppliers establish similar or more favorable relationships with our competitors, our operating results and our business would be harmed, because we would not have the necessary supply of hotel rooms or hotel rooms at satisfactory rates to meet the needs of our customers. Our business depends significantly upon our ability to contract with hotels in advance for the guaranteed availability of a specified number of hotel rooms. We rely on hotel suppliers to provide us with rooms at discounted prices. However, our contracts with our hotel suppliers are not exclusive and most of the contracts must be renewed semi-annually or annually. We cannot assure you that our hotel suppliers will renew our contracts in the future on terms similar to those we currently have. Furthermore, in order to maintain and grow our business, we will need to establish new arrangements with hotels in our existing markets and in new markets. We cannot assure you that we will be

able to identify appropriate hotels or enter into arrangements with those hotels on favorable terms, if at all. This failure could harm the growth of our business and, consequently, the price of our ADSs.

If we are unable to maintain existing arrangements with our airline ticket suppliers, our business may be harmed.

We derive significant benefits, including revenues, from our arrangements with major domestic airlines in China and many international airlines operating flights originating from China. Our airline ticket suppliers allow us to book and sell tickets on their behalf and collect commissions on tickets booked and sold through us. Although we currently have supply relationships with these airlines, these airlines also compete with us for ticket bookings and have entered into similar arrangements with many of our competitors and may continue to do so in the future. Such arrangements may be on better terms than we have. We cannot assure you that any of these airlines will continue to have supplier relationships with us. The loss of these supplier relationships would impair the profitability of our business as we would lose a significant source of our net revenues.

If we fail to increase our brand recognition, we may face difficulty in obtaining new business partners and consumers, and our business may be harmed.

We believe that establishing, maintaining and enhancing the Ctrip brand is a critical aspect of our efforts to grow our customer base and obtain new business partners. Some of our potential competitors already have well-established brands in the travel industry, increasing the importance of increasing and maintaining our brand recognition. The promotion of our brand will depend largely on our success in maintaining a sizeable and active customer base, providing high-quality customer service and organizing effective marketing and advertising programs. If our current customer base significantly declines, or the quality of our customer services substantially deteriorates, or if we fail to cost-effectively promote and maintain our brand, our business, operating results and financial condition would be materially adversely affected.

New competitors face low entry barriers to our industry, and if we do not compete successfully against new and existing competitors, we may lose our market share, and our profitability may be adversely affected.

We compete primarily with other consolidators of hotel accommodations and flight reservation services, such as www.elong.com. We also compete with traditional travel agencies.

In the future, we may also face competition from new players in the hotel consolidation market in China and abroad, such as expedia.com and hotels.com, that may enter China in the future. We may face more competition from hotels and airlines as they enter the discount rate market directly or through alliances with other travel consolidators. Our industry is characterized by relatively low fixed costs. In addition, like all other consolidators, we do not have exclusive arrangements with our travel suppliers. The combination of these two factors presents potential entrants to our industry with relatively low entry barriers.

Increased competition could reduce our operating margins and profitability and result in loss of market share. Some of our existing and potential competitors may have competitive advantages, such as significantly greater financial, marketing or other resources and may be able to mimic and adopt our business model. We cannot assure you that we will be able to successfully compete against new or existing competitors.

We may not be able to prevent others from using our intellectual property, which may harm our business and expose us to litigation.

We regard our domain names, trade names, trade marks and similar intellectual property as critical to our success. We try to protect our intellectual property rights by relying on trade mark protection and confidentiality laws and contracts. The trade mark and confidentiality protection in China may not be as effective in the United States. Policing unauthorized use of proprietary technology is difficult and expensive.

The steps we have taken may be inadequate to prevent the misappropriation of our proprietary technology. Any misappropriation could have a negative effect on our business and operating results. Furthermore, we may need to go to court to enforce our intellectual property rights. Litigation relating to our intellectual property might result in substantial costs and diversion of resources and management attention. See “— Risks Related to Doing Business in China — Uncertainties with respect to the Chinese legal system could adversely affect us.”

Our business depends substantially on the continuing efforts of our key executives, and our business may be severely disrupted if we lose their services.

Our future success heavily depends upon the continued services of our key executives, particularly James Jianzhang Liang, Neil Nanpeng Shen and Min Fan, who are the Chief Executive Officer, Chief Financial Officer and Executive Vice President of our company, respectively. We rely on their expertise in business operations, finance and travel services and on their relationships with our shareholders, suppliers and regulators. We do not maintain key-man life insurance for any of our key executives. If one or more of our key executives are unable or unwilling to continue in their present positions, we may not be able to easily replace them or at all. Therefore, our business may be severely disrupted, our financial conditions and results of operations may be materially and adversely affected, and we may incur additional expenses to recruit and train personnel.

In addition, if any of these key executives joins a competitor or forms a competing company, we may lose customers and suppliers. Each of our executive officers has entered into an employment agreement with us, which contains confidentiality and non-competition provisions. If any disputes arise between our executive officers and us, we cannot assure you the extent to which any of these agreements would be enforced in China, where these executive officers reside and hold most of their assets, in light of the uncertainties with China’s legal system. See “— Risks Related to Doing Business in China — Uncertainties with respect to the Chinese legal system could adversely affect us.”

Chinese laws and regulations restrict foreign investment in the air-ticketing, travel agency, advertising and Internet content provision businesses, and substantial uncertainties exist with respect to the application and implementation of Chinese laws and regulations.

We are a Cayman Islands corporation and a foreign person under Chinese laws. Due to the foreign ownership restrictions in the air-ticketing, travel agency, advertising and Internet content provision industries, we conduct part of our business through contractual arrangements with our affiliated Chinese entities. These entities hold the licenses and approvals that are essential for our business operations.

In the opinion of our Chinese counsel, our current ownership structures, the ownership structure of our wholly owned subsidiaries and our affiliated Chinese entities, the contractual arrangements among us, our wholly owned subsidiaries, our affiliated Chinese entities and their shareholders, and our business operations as described in this prospectus, are in compliance with all existing Chinese laws, rules and regulations. There are, however, substantial uncertainties regarding the interpretation and application of current or future Chinese laws and regulations. Accordingly, we cannot assure you that Chinese government authorities will not ultimately take a view contrary to the opinion of our Chinese legal counsel.

If we and our affiliated Chinese entities are found to be in violation of any existing or future Chinese laws or regulations, the relevant governmental authorities would have broad discretion in dealing with such violation, including, without limitation, levying fines, confiscating our income, or the income of our affiliated Chinese entities, revoking our business licenses, or the business licenses of our affiliated Chinese entities, requiring us and our affiliated Chinese entities to restructure our ownership structure or operations, and requiring us or our affiliated Chinese entities to discontinue any portion or all of our Internet content provision, air-ticketing, travel agency or advertising businesses.

Any of these actions could cause significant disruption to our business operations and may materially and adversely affect our business, financial condition and results of operations.

If our affiliated Chinese entities violate our contractual arrangements with them, our business could be disrupted, our reputation may be harmed and we may have to resort to litigation to enforce our rights which may be time consuming and expensive.

As the Chinese government restricts our ownership of Internet content provision, air-ticketing, travel agency and advertising businesses in China, we depend on our affiliated Chinese entities, in which we have no ownership interest, to conduct part of our non-hotel reservation business activities through a series of contractual arrangements, which are intended to provide us with the effective control over these entities. Although we have been advised by our Chinese counsel that these contractual arrangements are valid, binding and enforceable under current Chinese laws, these arrangements may not be as effective in providing control as direct ownership of these businesses. For example, our affiliated Chinese entities could violate our contractual arrangements with them by, among other things, failing to operate our air-ticketing, packaged-tour or advertising business in an acceptable manner. In any such event, we would have to rely on the Chinese legal system to enforce those agreements. Any legal proceeding could result in the disruption of our business, damage to our reputation, diversion of our resources and the incurrence of substantial costs. See “— Risks Related to Doing Business in China — Uncertainties with respect to the Chinese legal system could adversely affect us.”

The principal shareholders of our affiliated Chinese entities have potential conflicts of interest with us, which may adversely affect our business.

Our director, Qi Ji, and our officers, Min Fan and Alex Nanyan Zheng, are also the principal shareholders of our affiliated Chinese entities. Thus, conflicts of interest between their duties to our company and our affiliated entities may arise. We cannot assure you that when conflicts of interest arise, these persons will act completely in our interests or that conflicts of interests will be resolved in our favor. The conflicts may result in our loss of corporate opportunities. In addition, these persons could violate their non-competition or employment agreements with us or their legal duties by diverting business opportunities from us to others. In any such event, we would have to rely on the Chinese legal system to enforce these agreements. Any legal proceeding could result in the disruption of our business, diversion of our resources and the incurrence of substantial costs. See “— Risks Related to Doing Business in China — Uncertainties with respect to the Chinese legal system could adversely affect us.”

Our subsidiaries and affiliated entities in China are subject to restrictions on paying dividends or making other payments to us.

We are a holding company incorporated in the Cayman Islands. We rely on dividends from our subsidiaries in China and consulting and other fees paid to us by our affiliated Chinese entities. Current Chinese regulations permit our subsidiaries to pay dividends to us only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. In addition, our subsidiaries in China are required to set aside at least 10% of their respective accumulated profits each year, if any, to fund certain reserve funds. These reserves are not distributable as cash dividends. Further, if our subsidiaries and affiliated entities in China incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments to us.

The air-ticketing, travel agency, advertising and Internet industries are heavily regulated by the Chinese government. If we fail to obtain or maintain all pertinent permits and approvals, our business operations may be adversely affected.

The air-ticketing, travel agency, advertising and Internet industries are heavily regulated by the Chinese government. We are required to obtain applicable permits or approvals from different regulatory authorities in order to conduct our business, including separate licenses for Internet content provision, air-ticketing, advertising and travel agency activities. If we fail to obtain or maintain any of the required permits or approvals, we may be subject to various penalties, such as fines or suspension of operations in these regulated businesses, which could severely disrupt our business operations. As a result, our financial condition and results of operations may be adversely affected.

Our business could suffer if we do not successfully manage current growth and potential future growth.

Our business has grown very quickly in its few years of operation. We have rapidly expanded our operations and anticipate further expansion of our operations and workforce. Our growth to date has placed, and our anticipated future operations will continue to place, a significant strain on our management, systems and resources. In addition to training and managing our workforce, we will need to continue to improve and develop our financial and managerial controls and our reporting systems and procedures. We cannot assure you that we will be able to efficiently or effectively manage the growth of our operations, and any failure to do so may limit our future growth and hamper our business strategy.

Future acquisitions may have an adverse effect on our ability to manage our business.

Selective acquisitions forms part of our strategy to further expand our business. If we are presented with appropriate opportunities, we may acquire additional complementary companies, products or technologies. Future acquisitions and the subsequent integration of new companies into ours would require significant attention from our management. The diversion of our management’s attention and any difficulties encountered in any integration process could have an adverse effect on our ability to manage our business. Future acquisitions would expose us to potential risks, including risks associated with the assimilation of new operations, technologies and personnel, unforeseen or hidden liabilities, the diversion of resources from our existing businesses and technologies, the inability to generate sufficient revenue to offset the costs and expenses of acquisitions, and potential loss of, or harm to, relationships with employees, customers and suppliers as a result of integration of new businesses.

We may need additional capital and we may not be able to obtain it.

We believe that our current cash and cash equivalents, cash flow from operations and the proceeds from this offering will be sufficient to meet our anticipated cash needs for the foreseeable future. We may, however, require additional cash resources due to changed business conditions or other future developments, including any investments or acquisitions we may decide to pursue. If these resources are insufficient to satisfy our cash requirements, we may seek to sell additional equity or debt securities or obtain a credit facility. The sale of additional equity securities could result in additional dilution to our shareholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all.

We rely on services from third parties to carry out our business and to deliver our products to customers, and if there is any interruption or deterioration in the quality of these services, our customers may not continue using our services.

We rely on third-party computer systems to host our websites, as well as third-party licenses for some of the software underlying our technology platform. In addition, we rely on third-party travel agencies to issue airline tickets, confirmations and deliveries in some cities in China. Any interruption in our ability to obtain the products or services of these or other third parties or deterioration in their performance could impair the timing and quality of our own service. If our service providers fail to deliver airline tickets in a timely manner to our customers, our services will not meet the expectations of our customers and our reputation and brand will be damaged. Furthermore, if our arrangements with any of these third parties are terminated, we may not find an alternate source of support on a timely basis or on terms as advantageous to us.

If our hotel suppliers or customers provide us with untrue information regarding our customers’ stay, our commission income and revenues may decrease.

Currently, a substantial portion of our revenues is represented by commissions received from hotels for room nights booked through us. Generally, we do not receive payment from our customers on behalf of our hotel suppliers, as our customers pay hotels directly. To confirm whether a customer adheres to the booked itinerary, we make routine inquiries with the hotel and, occasionally, the customer. We rely on the

hotel and the customer to give us truthful information regarding the customer’s check-in and check-out dates, which information forms the basis for calculating the commission we are entitled to receive from the hotel. If our hotel suppliers or customers provide us with untrue information with respect to our customers’ length of stay at the hotels, our hotel revenue may decrease.

As we begin to expand into the merchant business, we may suffer losses if we are unable to predict the amount of inventory we will need to purchase.

We plan to gradually establish merchant business relationships with selected travel service suppliers beginning in the second or third quarter of 2004. In the merchant business relationship, we would buy hotel rooms and/or airline tickets in advance before selling them to our customers and thereby bear the inventory risk. If we do not correctly predict demand for hotel rooms and airline tickets that we are committed to purchase, we would be responsible for covering the cost of the hotel rooms and airline tickets we are unable to sell.

We may be subject to litigation for information provided on our websites, which may be time-consuming to defend.

Our websites contain information about hotels, flights, popular vacation destinations and other travel-related topics. It is possible that if any information, accessible on our websites, contains errors or false or misleading information, third parties could take action against us for losses incurred in connection with the use of such information. Any claims, with or without merit, could be time-consuming to defend, result in litigation and divert management’s attention and resources.

We could be liable for breaches of security on our websites and fraudulent transactions by users of our websites.

Currently, a portion of our transactions are conducted through our websites. In such transactions, secured transmission of confidential information (such as customers’ itineraries, hotel and other reservation information, credit card numbers and expiration dates, personal information and billing addresses) over public networks is essential to maintain consumer and supplier confidence. Our current security measures may not be adequate. Security breaches could expose us to litigation and possible liability for failing to secure confidential customer or supplier information and could harm our reputation and ability to attract customers.

If we are unable to attract, train and retain key individuals and highly skilled employees, our business may be adversely affected.

If our business continues to expand, we will need to hire additional employees, including travel supplier management personnel to maintain and expand our travel supplier network, information technology and engineering personnel to maintain and expand our websites, customer service center and systems, and customer support personnel to serve an increasing number of customers. If we are unable to identify, attract, hire, train and retain sufficient employees in these areas, users of our websites and customer service center may have negative experiences and turn to our competitors, which could adversely affect our business and results of operations.

We have limited business insurance coverage in China.

The insurance industry in China is still at an early stage of development. Insurance companies in China offer limited business insurance products. As a result, we do not have any business liability or disruption insurance coverage for our operations in China. Any business disruption, litigation or natural disaster might result in substantial costs and diversion of resources.

Facts and statistics in this prospectus relating to the China travel industry and economy may be inaccurate.

Facts and statistics in this prospectus relating to the Chinese travel industry and economy are derived from various government and institute research publications. While we have taken reasonable care to ensure that the facts and statistics presented are accurately reproduced from such sources, they have not been independently verified by us. Due to possibly flawed or ineffective collection methods and other problems in China, the statistics in this prospectus may be inaccurate or may not be comparable to statistics produced for other economies and should not be unduly relied upon. Further, there can be no assurance that they are stated or compiled on the same basis or with the same degree of accuracy as may be the case in the U.S. or elsewhere.

Risks Related to Doing Business in China

Adverse changes in political and economic policies of the Chinese government could have a material adverse effect on the overall economic growth of China, which could reduce the demand for our services and adversely affect our competitive position.

Substantially all of our operations are conducted in China and substantially all of our revenues are sourced from China. Accordingly, our results of operations, financial condition and prospects are subject to a significant degree to the economic, political and legal developments of China. Since the late 1970s, the Chinese government has been reforming the economic system in China. These reforms have resulted in significant economic growth. However, any economic reform policies or measures in China may from time to time be modified or revised. Any adverse changes in economic conditions in China, in policies of the Chinese government or in laws and regulations in China, could have a material adverse effect on the overall economic growth of China and investment in the travel industry. Such developments could adversely affect our businesses, lead to reduction in demand for our services and adversely affect our competitive position.

Slow-down of the Chinese economy may slow down our growth and profitability.

Our financial results have been, and are expected to continue to be, affected by the growth in the Chinese economy and travel industry. Although the Chinese economy has grown significantly in the past decade, there can be no assurance that growth of the Chinese economy will continue or that any slow-down will not have a negative effect on our business. The overall Chinese economy affects our profitability, since expenditures for travel may decrease in a slowing economy.

Future movements in exchange rates between the U.S. dollar and RMB may adversely affect the value of our ADSs.

We are exposed to foreign exchange risk arising from various currency exposures. Some of our expenses are denominated in foreign currencies while almost all of our revenues are denominated in RMB, the legal currency in China. We have not used any forward contracts or currency borrowings to hedge our exposure to foreign currency risk. The value of RMB is subject to changes in the Chinese government’s policies. Although our exposure to foreign exchange risks is limited, the value of your investment in our ADSs will be affected by the foreign exchange rate between the U.S. dollar and RMB, because the value of our business is effectively denominated in RMB, while our ADSs will be traded in U.S. dollars.

Restrictions on currency exchange may limit our ability to receive and use our revenues effectively.

Because substantially all of our revenues are in the form of RMB, any restrictions on currency exchange may limit our ability to use revenue generated in RMB to fund our business activities outside China or to make dividend payments in U.S. dollars. The principal regulation governing foreign currency exchange in China is the Foreign Currency Administration Rules (1996), as amended. Under the Rules, RMB is freely convertible for trade and service-related foreign exchange transactions, but not for direct investment, loan or investment in securities outside China unless the prior approval of the State Administration for Foreign

Exchange is obtained. Although the Chinese government regulations now allow greater convertibility of RMB for current account transactions, significant restrictions still remain. For example, foreign exchange transactions under our subsidiaries’ capital account, including principal payments in respect of foreign currency-denominated obligations, remain subject to significant foreign exchange controls and the approval of the State Administration of Foreign Exchange of the People’s Republic of China. These limitations could affect our ability to obtain foreign exchange for capital expenditures. We cannot be certain that the Chinese regulatory authorities will not impose more stringent restrictions on the convertibility of RMB, especially with respect to foreign exchange transactions.

Online payment systems in China are at an early stage of development and may restrict our ability to expand our online commerce service business.

Online payment systems in China are at an early stage of development. Although major Chinese banks are instituting online payment systems, these systems are not as widely available or acceptable to consumers in China as in the United States and other developed countries. In addition, only a limited number of consumers in China have credit cards or debit cards, relative to countries like the United States. The lack of adequate online payment systems may limit the number of online commerce transactions that we can service. If online payment services do not develop, our ability to grow our online commerce business may be limited.

The Internet market has not been proven as an effective commercial medium in China.

The market for Internet products and services in China has only recently begun to develop. The Internet penetration rate in China is lower than those in the United States and other developed countries. Since the Internet is an unproven medium for commerce in China, our future operating results from online services will depend substantially upon the increased use and acceptance of the Internet for distribution of products and services and facilitation of commerce in China.

The Internet may not become a viable commercial marketplace in China for various reasons in the foreseeable future. More salient impediments to Internet development in China include:


	•	consumer dependence on traditional means of commerce;

	•	inexperience with the Internet as a sales and distribution channel;

	•	inadequate development of the necessary infrastructure to facilitate online commerce;

	•	concerns about security, reliability, cost, ease of deployment, administration and quality of service associated with conducting business over the Internet;

	•	inexperience with credit card usage or with other means of electronic payment; and

	•	limited use of personal computers.

If the Internet is not widely accepted as a medium for online commerce in China, our ability to grow our online business would be impeded.

Uncertainties with respect to the Chinese legal system could adversely affect us.

We conduct our business primarily through our wholly owned subsidiaries incorporated in China. Our subsidiaries are generally subject to laws and regulations applicable to foreign investment in China and, in particular, laws applicable to wholly foreign-owned enterprises. In addition, we depend on several affiliated entities in China to honor their service agreements with us. Almost all of these agreements are governed by Chinese law and disputes arising out of these agreements are expected to be decided by arbitration in China. The Chinese legal system is based on written statutes. Prior court decisions may be cited for reference but have limited precedential value. Since 1979, Chinese legislation and regulations have significantly enhanced the protections afforded to various forms of foreign investments in China. However, since these laws and regulations are relatively new and the Chinese legal system is still evolving, the interpretations of many laws,

regulations and rules are not always uniform and enforcement of these laws, regulations and rules involve uncertainties, which may limit remedies available to us. In addition, any litigation in China may be protracted and result in substantial costs and diversion of resources and management attention.

We have attempted to comply with the Chinese government regulations regarding licensing requirements by entering into a series of agreements with our affiliated Chinese entities. If the Chinese laws and regulations change, our business in China may be adversely affected.

To comply with the Chinese government regulations regarding licensing requirements, we have entered into a series of agreements with our affiliated Chinese entities to exert our operational control over them and secure consulting fees and other payments from them. Although we have been advised by our Chinese counsel that our arrangements with our affiliated Chinese entities are valid under current Chinese law and regulations, we cannot assure you that we will not be required to restructure our organization structure and operations in China to comply with changing and new Chinese laws and regulations. Restructuring of our operations may result in disruption of our business, diversion of management attention and the incurrence of substantial costs.

We may have to register our encryption software with Chinese regulatory authorities, and if they request that we change our encryption software, our business operations will be disrupted as we develop or license replacement software.

Pursuant to the Regulations for the Administration of Commercial Encryption promulgated in 1999, foreign and domestic Chinese companies operating in China are required to register and disclose to Chinese regulatory authorities the commercial encryption products they use. Because these regulations do not specify what constitutes encryption products, we are unsure whether or how they apply to us and the encryption software we utilize. We may be required to register or apply for permits with the relevant Chinese regulatory authorities for our current or future encryption software. If Chinese regulatory authorities request that we change our encryption software, we may have to develop or license replacement software, which could disrupt our business operations. In addition, we may be subject to potential liability for using software that is subsequently deemed to be illegal by the relevant Chinese regulatory authorities. These potential liabilities might include fines, product confiscation and criminal sanctions. We cannot assure you that our business, financial condition and results of operations will not be materially and adversely affected by the application of these regulations.

The continued growth of the Chinese Internet market depends on the establishment of an adequate telecommunications infrastructure.

Although private sector Internet service providers currently exist in China, almost all access to the Internet is maintained through ChinaNet owned by China Telecom under the administrative control and regulatory supervision of China’s Ministry of Information Industry. In addition, the national networks in China connect to the Internet through a government-controlled international gateway. This international gateway is the only channel through which a domestic Chinese user can connect to the international Internet network. We rely on this infrastructure and China Telecom to provide data communications capacity primarily through local telecommunications lines. Although the government has announced plans to develop aggressively the national information infrastructure, we cannot assure you that this infrastructure will be developed. In addition, we will have no access to alternative networks and services, on a timely basis if at all, in the event of any infrastructure disruption or failure. The Internet infrastructure in China may not support the demands associated with continued growth in Internet usage.

Risks Related to the Shares and ADSs

There has been no public market for our ordinary shares or ADSs prior to this offering, and therefore the price may fall below the public offering price.

Prior to this initial public offering, there has been no public market for our ordinary shares or ADSs. The initial public offering price for our ADSs will be determined by negotiations between us and the underwriters and may bear no relationship to the market price for our ADSs after the initial public offering. We cannot assure you that an active trading market will develop or that the market price of our ADSs will not decline below the initial public offering price.

Your right to participate in any future rights offerings may be limited, which may cause dilution to your holdings.

We may from time to time distribute rights to our shareholders, including rights to acquire our securities. Under the deposit agreement, the depositary bank will not offer you those rights unless the distribution to ADS holders of both the rights and any related securities are either registered under the Securities Act, or exempt from registration under the Securities Act. We are under no obligation to file a registration statement with respect to any such rights or securities or to endeavor to cause such a registration statement to be declared effective. Moreover, we may not be able to establish an exemption from registration under the Securities Act. Accordingly, you may be unable to participate in our rights offerings and may experience dilution in your holdings.

You will experience immediate and substantial dilution in the book value of ADSs purchased.

The public offering price per ADS will be substantially higher than the net tangible book value per ordinary share issued prior to this offering. Purchasers of our ADSs offered in the offering will therefore incur an immediate and substantial dilution in the net tangible book value per ADSs from the initial public offering price. See “Dilution.”

The future sales by our existing shareholders of a substantial number of our ADSs in the public market could adversely affect the price of our ADSs.

If our shareholders sell substantial amounts of our ordinary shares or ADSs, including those issued upon the exercise of outstanding options, in the public market following this offering, the market price of our ADSs could fall. Such sales also might make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem appropriate. The 8,400,000 ordinary shares represented by 4,200,000 ADSs offered in this offering will be eligible for immediate resale in the public market without restrictions, and those held by our existing shareholders may also be sold in the public market in the future subject to the restrictions contained in Rule 144 under the Securities Act and applicable lock-up agreements. If any existing shareholder or shareholders sell a substantial amount of ordinary shares after the expiration of the lock-up period, the prevailing market price for our ADSs could be adversely affected. See “Underwriting” and “Shares Eligible for Future Sale” for additional information regarding resale restrictions.

The market price for our ADSs may be volatile.

The market price for our ADSs is likely to be highly volatile and subject to wide fluctuations in response to factors including the following:


	•	actual or anticipated fluctuations in our quarterly operating results;

	•	announcements of new services by us or our competitors;

	•	changes in financial estimates by securities analysts;

	•	conditions in the Internet, online commerce or travel industries;


	•	changes in the economic performance or market valuations of other Internet, online commerce or travel companies;

	•	announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures or capital commitments;

	•	additions or departures of key personnel;

	•	release of lock-up or other transfer restrictions on our outstanding ADSs or sales of additional ordinary shares or ADSs; and

	•	potential litigation.

In addition, the securities market have from time to time experienced significant price and volume fluctuations that are not related to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our ADSs.

You may not be able to exercise your right to vote.

As a holder of ADSs, you may instruct the depositary of our ADSs to vote the shares underlying your ADSs but only if we ask the depositary to ask for your instructions. Otherwise, you will not be able to exercise your right to vote unless you withdraw the shares. However, you may not know about the meeting enough in advance to withdraw the shares. If we ask for your instructions, the depositary will notify you of the upcoming vote and arrange to deliver our voting materials to you. We cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote your shares. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for the manner of carrying out voting instructions. This means that you may not be able to exercise your right to vote and there may be nothing you can do if the shares underlying your ADSs are not voted as you requested.

You may not receive distributions on ordinary shares or any value for them if it is illegal or impractical to make them available to you.

The depositary of our ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on ordinary shares or other deposited securities after deducting its fees and expenses. You will receive these distributions in proportion to the number of ordinary shares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holders of ADSs. We have no obligation to register ADSs, ordinary shares, rights or other securities under U.S. securities laws. We also have no obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. This means that you may not receive the distribution we make on our ordinary shares or any value for them if it is illegal or impractical for us to make them available to you. These restrictions may have a material adverse effect on the value of your ADSs.

You may lose some or all of the value of the distribution by the depositary if the depositary cannot convert RMB into U.S. dollars on a reasonable basis.

The depositary will convert any cash dividend or other cash distribution we pay on the ordinary shares into U.S. dollars, if it can do so on a reasonable basis and can transfer the U.S. dollars to the United States. If that is not possible or if any approval from any government is needed and cannot be obtained, the depositary is allowed to distribute RMB only to those ADS holders to whom it is possible to do so. It will hold RMB it cannot convert for the account of the ADS holders who have not been paid. However, it will not invest RMB and it will not be liable for interest. In addition, if the exchange rates fluctuate during a time when the

depositary cannot convert RMB, the ADS holders who have not been paid may lose some or all of the value of the distribution.

You may be subject to limitations on transfer of your ADSs.

Your ADSs represented by the ADRs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deems expedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary thinks it advisory to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason.

The sale, deposit, cancellation and transfer of the ADSs issued after exercise of rights may be restricted.

If we offer holders of our ordinary shares any rights to subscribe for additional shares or any other rights, the depositary may make these rights available to you. However, the depositary may allow rights that are not distributed or sold to lapse. In that case, you will receive no value for them. In addition, U.S. securities laws may restrict the sale, deposit, cancellation and transfer of the ADSs issued after exercise of rights. Under the deposit agreement, the depositary will not distribute rights to holders of ADSs unless the distribution and sale of rights and the securities to which these rights relate are either exempt from registration under the Securities Act of 1933, as amended, with respect to all holders of ADSs, or are registered under the provisions of the Securities Act. We can give no assurance that we can establish an exemption from registration under the Securities Act, and we are under no obligation to file a registration statement with respect to these rights or underlying securities or to endeavor to have a registration statement declared effective. Accordingly, you may be unable to participate in our rights offerings and may experience dilution of your holdings as a result.

If our subsidiaries are restricted from paying dividends and other distributions to us, our primary internal source of funds would decrease.

We are a holding company with no significant assets other than our equity interests in our wholly owned subsidiaries in China and Hong Kong. As a result, we rely on dividends, consulting and other fees paid to us by our subsidiaries and affiliated entities in China, including the funds necessary to service any debt we may incur. If our subsidiaries incur debts on their own behalf in the future, the instruments governing the debts may restrict their ability to pay dividends or make other distributions to us, which in turn would limit our ability to pay dividends on our ordinary shares. Chinese regulations permit payment of dividends only out of accumulated profits as determined in accordance with Chinese accounting standards and regulations. Our subsidiaries and affiliated entities in China are also required to set aside a portion of their net income each year to fund certain reserve funds that are not distributable as cash dividends.

You may face difficulties in protecting your interests, and our ability to protect our rights through the U.S. federal courts may be limited, because we are incorporated under Cayman Islands law.

Our corporate affairs are governed by our memorandum and articles of association and by the Companies Law (2003 Revision) and common law of the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established as they would be under statues or judicial precedents in the United States. In particular, the Cayman Islands has a less developed body of securities laws as compared to the U.S., and provides significantly less protection to investors. Therefore, our public shareholders may have more difficulties in protecting their interests in the face of actions by our management, directors or controlling shareholders than would shareholders of a corporation incorporated in a jurisdiction in the United States. In addition, Cayman Islands companies may not have standing to initiate a shareholder derivative action before the federal courts of the United States. As a result, our ability to protect our interests if we are harmed in a manner that would otherwise enable us to sue in a United States federal court may be limited.

Your ability to bring an action against us or against our directors and officers, or to enforce a judgment against us or them, will be limited because we are incorporated in the Cayman Islands, because we conduct a substantial portion of our operations in China and because the majority of our directors and officers reside outside of the U.S.

We are incorporated in the Cayman Islands, and we conduct a substantial portion of our operations in China through our wholly-owned subsidiaries and several affiliated entities in China. Most of our directors and officers reside outside of the United States and substantially all of the assets of those persons are located outside of the United States. As a result, it may be difficult or impossible for you to bring an action against us or against these individuals in the Cayman Islands or in China in the event that you believe that your rights have been infringed under the securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and of China may render you unable to enforce a judgment against our assets or the assets of our directors and officers. For more information regarding the relevant laws of the Cayman Islands and China, see “Enforceability of Civil Liabilities.”

We have not determined any specific use for a significant portion of the proceeds from this offering and we may use the proceeds in ways with which you may not agree.

We have not allocated the majority of the net proceeds of this offering to any particular purpose. Rather, our management will have considerable discretion in the application of the net proceeds received by us. You will not have the opportunity, as part of your investment decision, to assess whether proceeds are being used appropriately. You must rely on the judgment of our management regarding the application of the net proceeds of this offering. The net proceeds may be used for corporate purposes that do not improve our efforts to maintain profitability or increase our share price. The net proceeds from this offering may be placed in investments that do not produce income or that lose value.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Many statements made in this prospectus contain forward-looking statements that reflect our current expectations and views of future events. These forward-looking statements can be identified by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “is/are likely to” or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include, among other things:


	•	our anticipated growth strategies;

	•	our future business development, results of operations and financial condition;

	•	our ability to continue to control costs and maintain quality; and

	•	the expected growth of and change in the travel and online commerce industries in China.

The forward-looking statements included in the prospectus are subject to risks, uncertainties and assumptions about our company. Our company’s actual results of operations may differ materially from the forward-looking statements as a result of risk factors described under “Risk Factors” and elsewhere in this prospectus, including, among other things:


	•	our continuing ability to retain our customer base, build user loyalty and increase recognition of the Ctrip brand;

	•	the maintenance and expansion of our supplier relationships;

	•	risks inherent in the travel services businesses;

	•	our reliance on our technological platform; and

	•	risks associated with our holding company structure and the regulatory environment in China.

These risks are not exhaustive. Other sections of this prospectus include additional factors that could adversely impact our business and financial performance. Moreover, we operate in an emerging and evolving environment. New risk factors emerge from time to time, and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

You should not rely upon forward-looking statements as predictions of future events. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

USE OF PROCEEDS

We estimate that the net proceeds to us from this offering, after deducting underwriting discounts and the estimated offering expenses payable by us, will be approximately US$36.2 million, assuming the initial offering price of US$15.0 per ADS. We will not receive any of the proceeds from the sale of ADSs by the selling shareholders.

The principal purposes of this offering are to (i) create a public market for our ordinary shares for the benefits of all shareholders, (ii) retain talented employees by providing them with equity incentives, and (iii) facilitate possible acquisitions of complementary businesses. We believe that, based on current levels of operations and anticipated growth, our cash from operations, together with cash currently available, without giving effect to the net proceeds of this offering, will be sufficient to fund our operations for the foreseeable future.

We may use the net proceeds from this offering as follows:



	•	up to US$3.0 million to fund working capital;



	•	up to US$5.0 million to fund capital expenditures, including technology upgrades;



	•	up to US$5.0 million to expand our sales and marketing efforts; and



	•	the balance for general corporate purposes, including funding possible acquisitions of complementary businesses, such as travel consolidators and travel agencies in Greater China, particularly in China, although we are not currently negotiating any such transactions.

As of the date of this prospectus, we cannot specify with certainty the particular uses for the net proceeds we will receive upon the completion of this offering. Accordingly, our management will have significant flexibility in applying the net proceeds of the offering.

Pending use of the net proceeds, we intend to hold our net proceeds in short-term bank deposits or invest them in interest-bearing, investment grade securities.

DIVIDEND POLICY

We do not have a present plan to pay any cash dividends on our ordinary shares, or indirectly on our ADSs, with respect to 2003. We currently intend to recommend to our shareholders, beginning in 2004, an annual dividend of not less than 25% of our net profits, if any, subject to our results of operations and as our board of directors deems appropriate. We intend to retain the remainder of our available funds and any future earnings for use in the operation and expansion of our business.

Our board of directors has complete discretion as to whether we will distribute dividends in the future, subject to the approval of our shareholders. Even if our board of directors determines to distribute dividends, the form, frequency and amount of our dividends will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors as the board of directors may deem relevant. Any dividend we declare will be paid to the holders of ADSs, subject to the terms of the deposit agreement, to the same extent as holders of our ordinary shares, less the fees and expenses payable under the deposit agreement. Any dividend we declare will be distributed by the depositary bank to the holders of our ADSs. Cash dividends on our ordinary shares, including those represented by the ADSs, if any, will be paid in U.S. dollars. See “Description of American Depositary Shares.”

In December 2002, we declared and paid out of our reserves cash dividends totaling RMB27.3 million, which represented a return of capital, to holders of our ordinary and preferred shares. Separately, as part of our restructuring in connection with this offering, we spun off Home Inns in August 2003 and distributed our Home Inns shares to our shareholders in the form of dividends on a pro rata as-converted basis.

CAPITALIZATION

The following table sets forth our cash and capitalization, as of September 30, 2003:


	•	on an actual basis;


	•	on an as adjusted basis to reflect the conversion of all of our preferred shares into ordinary shares, which will occur automatically immediately prior to the closing of this offering, and the issuance and sale of the 2,700,000 ADSs offered hereby with estimated net proceeds of US$36.2 million, after deducting underwriting discounts, commissions and estimated offering expenses.

You should read this table together with our consolidated financial statements and the related notes included elsewhere in this prospectus and the information under “Selected Consolidated Financial Data” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”



			As of September 30, 2003


			Actual			As Adjusted

			RMB			RMB			US$(1)
						(unaudited)			(unaudited)

			(in thousands, except for share numbers)
Cash				70,353			369,984			44,700

Shareholders’ equity:
	Ordinary shares,
		US$0.01 par value; 49,157,064 shares authorized; 8,677,760 shares issued and outstanding;		719			2,487			301
	Series A preferred shares,
		US$0.01 par value; 3,937,518 shares authorized, issued and outstanding;		326			—			—
	Series B preferred shares,
		US$0.01 par value; 6,556,573 shares authorized, issued and outstanding;		543			—			—
	Series C preferred shares,
		US$0.01 par value; 2,180,755 shares authorized, issued and outstanding;		181			—			—
Additional paid-in capital				140,114			439,026			53,041
Deferred share-based compensation				(3,455	)		(3,455	)		(417	)
Cumulative translation adjustments				188			188			23
Accumulated deficit				(29,584	)		(29,584	)		(3,574	)

	Total shareholders’ equity			109,032			408,663			49,373

		Total capitalization		109,032			408,663			49,373


(1)	Translations of RMB amounts into U.S. dollars were made at a rate of RMB8.2771 to US$1.00. See “Exchange Rate Information.”

DILUTION

Our net tangible book value as of September 30, 2003 was RMB11.38, or US$1.38 per ordinary share, and US$2.76 per ADS. Net tangible book value per ordinary share represents the amount of total tangible assets, minus the amount of total liabilities, divided by the total number of ordinary shares outstanding. Dilution is determined by subtracting net tangible book value per ordinary share from the assumed public offering price per ordinary share.

Without taking into account any other changes in such net tangible book value after September 30, 2003, other than to give effect to (i) the conversion of all of our preferred shares into ordinary shares, which will occur immediately prior to the closing of this offering, and (ii) our sale of the 2,700,000 ADSs offered in this offering, at an estimated price of US$15.00 per ADS with estimated net proceeds of US$36.2 million after deduction of underwriting discounts and commissions and estimated offering expenses, our as adjusted net tangible book value at September 30, 2003 would have been US$1.60 per outstanding ordinary share, including ordinary shares underlying our outstanding ADSs, and US$3.20 per ADS. This represents an immediate increase in net tangible book value of US$0.22 per ordinary share, or US$0.44 per ADS, to existing shareholders and an immediate dilution in net tangible book value of US$5.90 per ordinary share, or US$11.80 per ADS, to purchasers of ADSs in this offering.

The following table illustrates the dilution on a per ordinary share basis assuming that the initial public offering price per ordinary share is US$7.50 and all ADSs are exchanged for ordinary shares:


Assumed initial public offering price per ordinary share	US$	7.50
Net tangible book value per ordinary share	US$	1.38

Amount of dilution in net tangible book value per ordinary share to new investors in the offering	US$	5.90

Amount of dilution in net tangible book value per ADS to new investors in the offering	US$	11.80

The following table summarizes on a pro forma basis the differences as of September 30, 2003 between our shareholders at September 30, 2003 and the new investors with respect to the number of ordinary shares purchased from us, the total consideration paid and the average price per ordinary share paid.



		Ordinary Shares
		Purchased					Total Consideration					Average Price		Average
												Per Ordinary		Price Per
		Number		Percent			Amount		Percent			Share		ADS

							US$					US$		US$
Shareholders as of September 30, 2003			24,630,894		82.0	%		16,727,672		29.2	%		0.68		1.36
New investors			5,400,000		18.0			40,500,000		70.8			7.50		15.00

	Total		30,030,894		100.0	%		57,227,672		100.0	%		8.18		16.36

The discussion and tables above are based on the number of ordinary shares and preferred shares outstanding as of September 30, 2003, excluding (a) 2,247,420 ordinary shares underlying options granted under our stock option plans and outstanding as of September 30, 2003, and (b) 668,090 ordinary shares available for issuance upon the exercise of future grants under our stock option plans.

To the extent that any of the outstanding options are exercised, there will be further dilution to new investors.

EXCHANGE RATE INFORMATION

Our business is primarily conducted in China and denominated in RMB. However, periodic reports made to shareholders will be expressed in U.S. dollars using the then current exchange rates. For your convenience, this prospectus contains translations of RMB amounts into U.S. dollars at specific rates solely for the convenience of the reader. The conversion of RMB into U.S. dollars in this prospectus is based on the noon buying rate in the City of New York for cable transfers of RMB as certified for customs purposes by the Federal Reserve Bank of New York. Unless otherwise noted, all translations from RMB to U.S. dollars and from U.S. dollars to RMB in this prospectus were made at a rate of RMB8.2771 to US$1.00, the noon buying rate in effect as of September 30, 2003. The prevailing rate as of November 21, 2003 was RMB8.2769 to US$1.00. We make no representation that any RMB or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or RMB, as the case may be, at any particular rate, the rates stated below, or at all. The Chinese government imposes control over its foreign currency reserves in part through direct regulation of the conversion of RMB into foreign exchange and through restrictions on foreign trade. The exchange rate from the U.S. dollar to RMB has fluctuated between a range of US$l.00 to RMB8.2272 and US$l.00 to RMB8.2769 between January 1, 1998 and November 21, 2003.

The following table sets forth information concerning exchange rates between the RMB and the U.S. dollar for the periods indicated. These rates are provided solely for your convenience and are not necessarily the exchange rates that we used in this prospectus or will use in the preparation of our periodic reports or any other information to be provided to you. The source of these rates is the Federal Reserve Bank of New York.



			Noon Buying Rate

			Period
Period			End		Average(1)		Low		High


			(RMB per US$1.00)
1998				8.2789		8.3006		8.3180		8.2774
1999				8.2795		8.2783		8.2800		8.2770
2000				8.2774		8.2784		8.2799		8.2768
2001				8.2766		8.2770		8.2786		8.2676
2002				8.2800		8.2770		8.2800		8.2669
2003
	First Quarter			8.2774		8.2776		8.2800		8.2766
		April		8.2771		8.2772		8.2775		8.2768
		May		8.2768		8.2769		8.2771		8.2768
		June		8.2776		8.2771		8.2776		8.2768
		July		8.2774		8.2773		8.2776		8.2768
		August		8.2772		8.2747		8.2775		8.2272
		September		8.2771		8.2772		8.2775		8.2768
		October		8.2766		8.2768		8.2776		8.2765
		November (through November 21)		8.2769		8.2768		8.2770		8.2766


(1)	Annual averages are calculated from month-end rates. Monthly averages are calculated using the average of the daily rates during the relevant period.

ENFORCEABILITY OF CIVIL LIABILITIES

We are incorporated in the Cayman Islands because of the following benefits found there:


	•	political and economic stability;

	•	an effective judicial system;

	•	a favorable tax system;

	•	the absence of exchange control or currency restrictions; and

	•	the availability of professional and support services.

However, certain disadvantages accompany incorporation in the Cayman Islands. These disadvantages include:


	(1) the Cayman Islands has a less developed body of securities laws as compared to the United States and these securities laws provide significantly less protection to investors; and

	(2) Cayman Islands companies may not have standing to sue before the federal courts of the United States.

Our constituent documents do not contain provisions requiring that disputes, including those arising under the securities laws of the United States, between us, our officers, directors and shareholders, be arbitrated.

A substantial portion of our current operations is conducted in China, and substantially all of our assets are located in China. We also conduct part of our operations in Hong Kong. We have appointed CT Corporation System, 111 Eighth Avenue, New York, NY 10011, as our agent upon whom process may be served in any action brought against us under the securities laws of the United States. A majority of our directors and officers are nationals or residents of jurisdictions other than the United States and a substantial portion of their assets are located outside the United States. As a result, it may be difficult for a shareholder to effect service of process within the United States upon these persons, or to enforce against us or them judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States.

Maples and Calder Asia, our counsel as to Cayman Islands law, Commerce & Finance Law Office, our counsel as to Chinese law, and Boughton Peterson Yang Anderson, our counsel as to Hong Kong law, have advised us, respectively, that there is uncertainty as to whether the courts of the Cayman Islands, China and Hong Kong, respectively, would:


	(1) recognize or enforce judgments of United States courts obtained against us or our directors or officers predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States; or

	(2) entertain original actions brought in each respective jurisdiction against us or our directors or officers predicated upon the securities laws of the United States or any state in the United States.

Maples and Calder Asia has further advised us that a final and conclusive judgment in the federal or state courts of the United States under which a sum of money is payable, other than a sum payable in respect of taxes, fines, penalties or similar charges, may be subject to enforcement proceedings as a debt in the courts of the Cayman Islands under the common law doctrine of obligation.

Commerce & Finance Law Office has advised us further that the recognition and enforcement of foreign judgments are provided for under Chinese Civil Procedures Law. Chinese courts may recognize and enforce foreign judgments in accordance with the requirements of Chinese Civil Procedures Law based either on treaties between China and the country where the judgment is made or on reciprocity between jurisdictions.

Boughton Peterson Yang Anderson, in association with Squire, Sanders and Dempsey, has further advised us that enforcement of a foreign judgment in Hong Kong is subject to the Foreign Judgments (Reciprocal Enforcement) Ordinance (Cap. 319) of the laws of Hong Kong, or the Ordinance, which provides that a final and conclusive judgment of a court specified in an order under the Ordinance against a Hong Kong company for a fixed sum of money and which is enforceable by execution in the specified jurisdiction (other than a sum payable in respect of taxes or like charges, fines or penalties, in respect of any legal proceedings) may be registered in Hong Kong in accordance with the Rules of the High Court of Hong Kong and the provisions of the Ordinance and upon registration would be enforceable in Hong Kong provided it is not subsequently set aside by the courts of Hong Kong. The United States is not a country specified in the orders passed under the Ordinance and therefore any judgment granted by a United States court would be enforceable in Hong Kong only if it is made the subject of a Hong Kong judgment. A final judgment from a court in the United States may be treated and sued upon in the courts of Hong Kong as a liquidated sum.

SELECTED CONSOLIDATED FINANCIAL DATA

You should read the following information with our consolidated financial statements and related notes, and “Management’s Discussion and Analysis and Results of Operations” included elsewhere in this prospectus.

The selected consolidated statement of operations data for the years ended December 31, 2001 and 2002 and the nine months ended September 30, 2003, and the consolidated balance sheet data as of December 31, 2001 and 2002 and September 30, 2003, are derived from our audited consolidated financial statements included elsewhere in this prospectus and should be read in conjunction with, and are qualified in their entirety by reference to, these financial statements and related notes. These consolidated financial statements have been audited by PricewaterhouseCoopers and were prepared in accordance with U.S. GAAP. The selected consolidated statement of operations data for the year ended December 31, 2000 and the nine months ended September 30, 2002, and the selected consolidated balance sheet data as of December 31, 2000 and September 30, 2002, are derived from our unaudited consolidated financial statements included elsewhere in this prospectus and should be read in conjunction with, and are qualified in their entirety by reference to, these unaudited consolidated financial statements and related notes. We have prepared the unaudited information on the basis as the audited consolidated financial statements, and have included, in our opinion, all adjustments, consisting only of normal and recurring adjustments that we consider necessary for a fair presentation of the financial information set forth in those statements. Although we commenced operations in June 1999, we have not included financial information for the six-month period ended December 31, 1999, as such information is not available on a comparative basis with the audited financial information included in this prospectus.



		Year Ended December 31,												Nine Months Ended September 30,

		2000			2001			2002			2002			2002			2003			2003

		RMB			RMB			RMB			US$(1)			RMB			RMB			US$(1)
		(unaudited)												(unaudited)

		(in thousands, except for share and per share data)
Selected Consolidated Statements of Operation Data:
Net revenues			6,453			43,984			100,049			12,087			68,809			105,717			12,772
Costs of services			(1,950	)		(7,940	)		(13,673	)		(1,652	)		(9,100	)		(14,447	)		(1,745	)

Gross profit			4,503			36,044			86,376			10,435			59,709			91,270			11,027
Operating expenses:
	Product development		(6,817	)		(7,759	)		(13,365	)		(1,615	)		(9,170	)		(13,254	)		(1,601	)
	Sales and marketing		(17,378	)		(30,360	)		(32,309	)		(3,902	)		(23,520	)		(28,401	)		(3,431	)
	General and administrative		(11,677	)		(14,814	)		(15,702	)		(1,897	)		(11,173	)		(12,433	)		(1,502	)
	Share-based compensation(2)		—			(22	)		(462	)		(56	)		(336	)		(1,031	)		(125	)
	Amortization of goodwill and other intangible assets		(371	)		(1,807	)		(353	)		(43	)		(265	)		(265	)		(32	)
	Other expenses incurred for joint venture companies		—			(934	)		(915	)		(111	)		(915	)		—			—

Total operating expenses			(36,243	)		(55,696	)		(63,106	)		(7,624	)		(45,379	)		(55,384	)		(6,691	)

Income (loss) from operations			(31,740	)		(19,652	)		23,270			2,811			14,330			35,886			4,336
Interest income and other			675			2,049			1,293			156			438			3,717			449
Income (loss) before income tax benefit (expense), minority interests and share of income (loss) of joint venture companies			(31,065	)		(17,603	)		24,563			2,967			14,768			39,603			4,785
Income tax benefit (expense)			7,088			2,342			(10,043	)		(1,213	)		(6,156	)		(10,966	)		(1,325	)
Minority interests			—			—			71			9			32			(18	)		(2	)
Share of income (loss) of joint venture companies			—			—			(398	)		(48	)		(188	)		573			69

Net income (loss) for the year			(23,977	)		(15,261	)		14,193			1,715			8,456			29,192			3,527
Earnings per Share Data:
Accretion for Series B preferred shares			(2,196	)		(14,316	)		(16,492	)		(1,993	)		(12,140	)		(12,366	)		(1,494	)
Dividends to holders of preferred shares			—			—			(16,762	)		(2,025	)		—			—			—
Dividends to holders of Series A and Series B preferred shares for spin-off of joint venture companies			—			—			—			—			—			(2,829	)		(342	)
Deemed dividends upon repurchase of preferred shares			—			—			—			—			—			(35,336	)		(4,269	)
Net loss attributable to ordinary shareholders			(26,173	)		(29,577	)		(19,061	)		(2,303	)		(3,684	)		(21,339	)		(2,578	)
Loss per share, basic and diluted			(3.03	)		(3.26	)		(2.00	)		(0.24	)		(0.39	)		(2.26	)		(0.27	)
Loss per ADS(3), basic and diluted			(6.06	)		(6.52	)		(4.00	)		(0.48	)		(0.78	)		(4.52	)		(0.54	)
Cash dividends per share(4)			—			—			1.11			0.14			—			—			—



		As of December 31,											As of September 30,

		2000		2001			2002			2002			2002			2003		2003

		RMB		RMB			RMB			US$(1)			RMB			RMB		US$(1)
		(unaudited)											(unaudited)

		(in thousands, except for share and per share data)
Consolidated Balance Sheet Data:
	Cash		88,908		42,464			38,931			4,703			61,488			70,353		8,500
	Other current assets		3,343		45,932			20,580			2,487			25,907			34,877		4,214
	Non-current assets		25,639		20,529			37,744			4,560			30,275			46,769		5,650
	Total assets		117,890		108,925			97,255			11,750			117,670			151,999		18,364
	Current liabilities		9,736		12,962			13,093			1,582			12,363			42,910		5,184
	Minority interests		—		—			828			100			512			57		7
	Series B preferred shares(5)		94,154		108,470			124,963			15,097			120,610			—		—
	Total shareholders’ equity (deficit)		14,000		(12,507	)		(41,629	)		(5,029	)		(15,815	)		109,032		13,173


(1)	Translations of RMB amounts into U.S. dollars were made at a rate of RMB8.2771 to U.S.$1.00. See “Exchange Rate Information.”

(2)	Share based compensation was related to the associated operating expense categories as follows:



	Year Ended December 31,								Nine Months Ended September 30,

	2000		2001		2002		2002		2002		2003		2003

	RMB		RMB		RMB		US$(1)		RMB		RMB		US$(1)
	(unaudited)								(unaudited)

	(in thousands, except for share and per share data)
Product and development		—		5		131		16		95		254		31
Sales and marketing		—		1		27		3		22		82		10
General administration		—		16		304		37		219		695		84

				22		462		56		336		1,031		125



(3)	Each ADS represents two ordinary shares.



(4)	The dividends recognized represent dividends totaling RMB27.3 million distributed out of our reserves in December 2002 to holders of ordinary shares, Series A preferred shares and Series B preferred shares on a pro rata as-converted basis. Dividends per share were calculated on the basis of 24,630,894 ordinary shares on an as-converted basis.


(5)	Prior to the forfeiture of the redemption feature in September 2003, Series B preferred shares were not included as part of shareholders’ equity as such shares were redeemable at the option of the holder. As of September 30, 2003, Series B preferred shares are included in total shareholders’ equity (deficit).

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the related notes included in this prospectus.

Overview

We are a leading consolidator of hotel accommodations and airline tickets in China. We aggregate information on hotels and flights and enable our customers to make informed and cost-effective hotel and flight bookings. We also offer packaged-tour products and other travel-related products and services. For the nine months ended September 30, 2003, revenues from our hotel reservation, air-ticketing and other businesses accounted for 85.8%, 10.5% and 3.7%, respectively, of our revenues.

The major factors affecting our results of operations and financial condition include:


	•	growth in the Chinese economy and the travel industry;

	•	revenue composition and sources of revenue growth;

	•	costs of services;

	•	operating expenses;

	•	income taxes and tax rebates;

	•	accretion for our Series B preferred shares; and

	•	seasonality in the travel industry.

Each of these factors is discussed below.

Growth in the Chinese Economy and the Travel Industry. Our financial results have been, and are expected to continue to be, affected by the growth in the Chinese economy and travel industry. The Chinese economy has grown significantly in recent years, with its gross domestic product increasing from RMB7,835 billion in 1998 to RMB10,479 billion in 2002, representing a compound annual growth rate of 7.5%. This growth has led to a substantial increase in industrial and commercial activity and, in combination with an increase in personal disposable income and changes in consumption pattern, resulted in significant increase in the demand for travel services. The aggregate expenditure on tourism in China increased from RMB239.1 billion in 1998 to RMB387.8 billion in 2002, representing a compound annual growth rate of 12.8%. According to China’s tenth five-year plan, the Chinese government expects an approximately 7% compound annual growth rate of China’s gross domestic product from 2000 to 2005. We anticipate that demand for travel services in China will continue to increase substantially in the foreseeable future as the Chinese economy continues to grow.

Revenue Composition and Sources of Revenue Growth. We have experienced significant revenue growth since we commenced operations in 1999. Our revenues grew from RMB6.9 million in 2000 to RMB46.4 million in 2001 and to RMB105.3 million in 2002. Our revenues for the nine months ended September 30, 2003 were RMB111.3 million.

We generate our revenues primarily from the hotel reservation and air-ticketing businesses. The table below sets forth the revenues from our principal lines of business as a percentage of our revenues for the periods indicated.



											Nine Months Ended
		Year Ended December 31,									September 30,

		2000			2001			2002			2002			2003

		(unaudited)									(unaudited)
Revenues:
	Hotel reservation		77.3	%		93.5	%		91.9	%		92.8	%		85.8	%
	Air-ticketing		12.2			4.0			5.3			4.6			10.5
	Packaged-tour		4.5			1.3			0.4			0.5			1.6
	Others		6.0			1.2			2.4			2.1			2.1

Total revenues			100.0	%		100.0	%		100.0	%		100.0	%		100.0	%

As we generally do not take ownership of the products and services being sold and act as agent in substantially all of our transactions, our risk of loss due to obligations for cancelled hotel and airline ticket reservations is minimal. Accordingly, we recognize revenues based on commissions earned rather than transaction value.

Because current Chinese laws and regulations impose substantial restrictions on foreign ownership of the air-ticketing, travel agency, advertising and Internet content provision businesses in China, we conduct part of our air-ticketing and packaged-tour businesses through our affiliated Chinese entities. Historically, we generated less than 5% of our revenues from fees charged to these entities. See “— Affiliated Chinese Entities” for a description of our relationship with such entities.

Hotel Reservation. Revenues from our hotel reservation business have been our primary source of revenue since our inception. In 2000, 2001, 2002 and the nine months ended September 30, 2003, revenues from our hotel reservation business accounted for RMB5.3 million, RMB43.4 million, RMB96.8 million (US$11.7 million) and RMB95.5 million (US$11.5 million), respectively, or 77.3%, 93.5%, 91.9% and 85.8%, respectively, of our revenues.

We derive our hotel reservation revenues through commissions from hotels, primarily based on the room rates paid by our customers. We recognize revenue when we receive confirmation from a hotel that a customer who booked the hotel through us has checked into the hotel. While we generally agree in advance on fixed commissions with a particular hotel, we also enter into a commission arrangement with many of our hotel suppliers that we refer to as the “ratchet system.” Under the ratchet system, our commission per room night for a given hotel increases for the month if we sell in excess of a pre-agreed number of room nights with such hotel within the month. We believe that absent extraordinary events such as SARS, revenue from our hotel reservation business will continue to experience substantial growth on an annual basis.

Air-Ticketing. Since early 2002, the air-ticketing business has been our fastest-growing source of revenues. In 2000, 2001, 2002 and the nine months ended September 30, 2003, revenues from the air-ticketing business accounted for RMB0.8 million, RMB1.8 million, RMB5.6 million (US$0.7 million) and RMB11.6 million (US$1.4 million), respectively, or 12.2%, 4.0%, 5.3% and 10.5%, respectively, of our revenues.

We conduct our air-ticketing business through Beijing Chenhao and Shanghai Huacheng, both of which are our affiliated entities, as well as a network of independent air-ticketing service companies. Currently, we recognize revenue when a ticket is issued and delivered by Beijing Chenhao and Shanghai Huacheng. Prior to July 1, 2003, when we charged Beijing Chenhao or Shanghai Huacheng in accordance with our contractual arrangements with them, we recognized the amount of such charge as revenue from our air-ticketing business. We receive a higher commission per ticket from some airlines if the volume of tickets we sell for such airline reaches certain performance targets. In addition, since the commission rate per ticket for international flights is generally higher than that for domestic flights in China, we intend to sell more tickets for international flights.

Packaged-tour. Currently, we conduct our packaged-tour business mainly through Shanghai Huacheng. Currently, we generally recognize revenue when a customer completes the packaged tour. Prior to

July 1, 2003, however, when we charged Shanghai Huacheng in accordance with our contractual arrangements with it, we recognized the amount of such charge as revenue from our packaged tour business. We expect that our revenues from the packaged-tour business will grow as a result of our increased promotion of packaged-tour products and our acquisition of Shanghai Cuiming.

Other Businesses. Our other business lines comprise advertising services and sales of our VIP membership cards. We place our customers’ advertisements on our websites and in our introductory brochures. We sell VIP membership cards that allow cardholders to receive discounts from some restaurants, clubs and bars and certain priority in receiving our services. We currently conduct the advertising business through Ctrip Commerce, and we recognize revenue when Ctrip Commerce renders advertising services. Prior to July 1, 2003, however, we recognized our advertising revenue when we charged Ctrip Commerce in accordance with our contractual arrangements with it. We recognize revenue from sales of our VIP membership cards when they are sold to customers. We expect that revenues from these other businesses will continue to contribute an insignificant percentage of our revenues in the near future.

Costs of Services. Costs of services are costs directly attributable to rendering our revenues, which consist primarily of payroll compensation, telecommunication expenses and other direct expenses incurred in connection with our transaction and service platform. Payroll compensation accounted for 33.6%, 43.1%, 57.0% and 59.5% of our costs of services in 2000, 2001, 2002 and the nine months ended September 30, 2003, respectively. Telecommunication expenses accounted for 31.9%, 42.3%, 30.5% and 27.1% of our costs of services in 2000, 2001, 2002 and the nine months ended September 30, 2003, respectively.

Costs of services accounted for 30.2%, 18.1%, 13.7% and 13.7% of our net revenues in 2000, 2001, 2002 and the nine months ended September 30, 2003, respectively. We believe our relatively low ratio of costs of services to revenues is primarily due to competitive labor costs in China and relatively high efficiency of our customer service system. The average compensation of our customer service representatives at our toll-free, 24-hour transaction and service center in October 2003 was RMB2,791 (US$337), consisting of an average fixed pay of RMB1,551 (US$187) plus commissions based on the number of transactions completed during the month. In October 2003, each of our customer service representatives received approximately 2,425 calls on average. Therefore, the average labor cost per call in October 2003 was approximately RMB1.15 (US$0.14). Our cost efficiency was further enhanced by our website operations, which require significantly fewer service staff to operate and maintain. We believe our costs of services will continue to account for a relatively small percentage of our net revenues for the foreseeable future.

Operating Expenses. Operating expenses consist primarily of product development expenses, sales and marketing expenses, general and administration expenses and share-based compensation.

Product development expenses primarily include expenses we incur to develop our travel suppliers network and electronic confirmation system, as well as expenses we incur to develop, maintain and monitor our transaction and service platform, including our travel booking system. In the past, we incurred relatively high product development costs as a percentage of net revenues to develop the supplier network and infrastructure necessary to support our business. As we have established the platform that we believe can keep up with the expected growth in our transaction volume without substantial incremental costs for redesign, we do not expect that our product development expenses will increase significantly as a percentage of net revenues for the foreseeable future.

Sales and marketing expenses primarily comprise payroll compensation and benefits for our sales and marketing personnel, advertising expenses, commissions for our marketing partners for referring customers to us, production costs of marketing materials and membership cards and expenses associated with our membership reward program. Our sales and marketing expenses as a percentage of net revenues have declined due to our more effective and focused marketing efforts. As we continue to pursue our targeted marketing strategy, we expect that our sales and marketing expenses will remain relatively steady as a percentage of net revenues for the foreseeable future.

General and administrative expenses consist primarily of payroll compensation, benefits and travel expenses for our administrative staff, as well as administrative office expenses. General and administrative

expenses as a percentage of net revenues have remained largely unchanged. We expect that our general and administrative expenses will increase after the closing of this offering due to the various additional legal, accounting and other requirements applicable to a public company listed in the United States. However, given our expected increased revenues, we do not expect our general and administrative expenses to increase substantially as a percentage of our net revenues.

Share-based compensation is the difference, if any, between the estimated fair value of our ordinary shares and the amount an employee is required to pay to acquire the shares, as determined on the date the share option is granted. We amortize share-based compensation and charge it to expense over the three-year vesting period of the underlying options. Subsequent to September 30, 2003, we granted 268,980 options to certain directors, senior executives and employees. See “Management — Employees’ Stock Option Plans.” We do not believe that future compensation expense related to these options will have a material impact on our consolidated financial statements.

Income Taxes. Companies in China are generally subject to a 30% state enterprise income tax and a 3% local income tax. One of our subsidiaries in China, Ctrip Computer Technology, obtained approval from the Chinese government authorities to be entitled to a reduced 15% state enterprise income tax rate in November 2003 because it is classified as a “new high-technology enterprise.” Another Chinese subsidiary, Ctrip Travel Information, is entitled to a reduced 15% state enterprise income tax rate because it was incorporated in Pudong New District, Shanghai.

Financial Subsidies. In 2002 and the nine months ended September 30, 2003, our subsidiaries in China received business tax rebates in the form of financial subsidies from the government authorities in Shanghai in the amount of RMB783,900 (US$94,707) and RMB2,431,500 (US$293,762), respectively, which we recorded as other income. We cannot assure you, however, that our subsidiaries will continue to receive such business tax rebates or other financial subsidies in the future.

Accretion for Series B Preferred Shares. Prior to September 4, 2003, holders of our Series B mandatorily redeemable convertible preferred shares, or Series B preferred shares, had the right to request that we redeem all of their Series B preferred shares at US$3.13334 per share plus any declared but unpaid dividends commencing November 2005. Accordingly, the Series B preferred shares have been accreted to the estimated redemption value through periodic charges to accumulated deficit or additional paid-in-capital, as appropriate. Charges with respect to our Series B preferred shares totaled RMB2.2 million, RMB14.3 million, RMB16.5 million (US$2.0 million) and RMB12.4 million (US$1.5 million) for 2000, 2001, 2002 and the nine months ended September 30, 2003, respectively.

Holders of our Series B preferred shares have agreed to extinguish their redemption right effective as of September 4, 2003 in connection with the issuance and sale of our Series C convertible preferred shares. Therefore, we have not incurred any additional accretion for Series B preferred shares since September 4, 2003.

Seasonality in the Travel Industry. The travel industry is generally characterized by seasonal fluctuations. However, as we are still in the high growth phase, the rate of our revenue growth has offset any impact caused by the seasonal nature of the travel industry. The third quarter of each year generally contributes the highest portion of our annual net revenues, mainly because it coincides with the peak business and leisure travel season. The first quarter of each year generally contributes the lowest portion of our annual net revenues primarily due to less business activity and the Chinese new year holiday.

Individual travelers tend to curtail travel due to trends or events that include the outbreak of serious contagious diseases such as SARS, increased occurrence of travel-related accidents, bad weather or natural disasters, general economic downturns and increased prices in the hotel, airline or other travel-related industries. During the period from March 2003 through June 2003, several economies in Asia, including Hong Kong and China, were severely affected by the outbreak of SARS. Although none of our employees was infected with SARS, our business and operating results were adversely affected. Total room nights booked through us decreased from over 131,000 and over 122,000 in May and June 2002, respectively, to over 36,000 and over 109,000 in May and June 2003, respectively.

Except for the SARS period, we have not experienced any decline in our quarterly revenues. If the growth of our business slows down in the future, our revenue may vary from quarter to quarter in line with the seasonality of the travel industry.

Quarterly Results of Operations

The following table presents our unaudited quarterly results of operations for the nine quarters in the period ended September 30, 2003. You should read the following table in conjunction with the consolidated financial statements and related notes contained elsewhere in this prospectus. We have prepared the unaudited information on the same basis as our audited consolidated financial statements. This information includes all adjustments, consisting only of normal recurring adjustments, that we consider necessary for fair presentation of our financial position and operating results for the quarters presented. Operating results for any quarter are not necessarily indicative of results for any future quarters or for a full year.



		Three Months Ended (unaudited)

		September 30,			December 31,			March 31,			June 30,			September 30,			December 31,			March 31,			June 30,			September 30,
		2001			2001			2002			2002			2002			2002			2003			2003			2003


		(in RMB thousands, except percentages and non-financial data)
Revenues:
	Hotel reservation		13,502			15,809			16,834			23,147			27,240			29,541			30,250			16,571			48,707
	Air-ticketing		504			518			697			976			1,670			2,257			2,413			2,393			6,842
	Packaged-tour		75			115			152			127			111			42			140			—			1,595
	Others		68			184			279			499			706			1,034			814			639			962

Total revenues			14,149			16,626			17,962			24,749			29,727			32,874			33,617			19,603			58,106

Less: business tax and related surcharges			(714	)		(841	)		(915	)		(1,233	)		(1,481	)		(1,635	)		(1,667	)		(973	)		(2,969	)

Net revenues			13,435			15,785			17,047			23,516			28,246			31,239			31,950			18,630			55,137

Cost of services			(2,306	)		(2,516	)		(2,608	)		(3,226	)		(3,267	)		(4,572	)		(4,210	)		(3,754	)		(6,483	)

Gross profit			11,129			13,269			14,439			20,290			24,979			26,667			27,740			14,876			48,654

Gross margin			83%			84%			85%			86%			88%			85%			87%			80%			88%
Operating Expenses:
	Product development		(1,994	)		(1,821	)		(2,619	)		(3,173	)		(3,380	)		(4,194	)		(4,436	)		(3,807	)		(5,011	)
	Sales and marketing		(9,601	)		(8,579	)		(6,478	)		(8,181	)		(8,861	)		(8,788	)		(8,794	)		(7,725	)		(11,882	)
	General administrative		(3,706	)		(3,664	)		(3,666	)		(3,889	)		(3,618	)		(4,529	)		(4,225	)		(3,712	)		(4,496	)
	Share-based compensation		(9	)		(10	)		(115	)		(131	)		(89	)		(127	)		(219	)		(399	)		(414	)
	Amortization of goodwill and other intangible assets		(485	)		(352	)		(88	)		(88	)		(88	)		(88	)		(88	)		(88	)		(88	)
	Other expenses incurred for joint venture companies (Home Inns)		(341	)		(594	)		(634	)		(281	)		—			—			—			—			—

Total operating expenses			(16,136	)		(15,020	)		(13,600	)		(15,743	)		(16,036	)		(17,726	)		(17,762	)		(15,731	)		(21,891	)

Income (loss) from operations			(5,007	)		(1,751	)		839			4,547			8,943			8,941			9,978			(855	)		26,763

Operating margin			—			—			5%			19%			32%			29%			31%			—			49%
	Number of room nights booked (in thousands)		234.3			262.1			273.8			374.4			438.8			467.7			486.0			280.5			747.8
	Number of airline tickets booked (in thousands)		—	*		—	*		—	*		—	*		—	*		79.3			111.7			74.4			183.1


*	Meaningful information concerning the number of airline tickets booked during these periods is not available.

Our quarterly net revenues have experienced continued growth since the third quarter of 2001, except for the second quarter of 2003 during which our revenues were materially adversely affected by the SARS outbreak. The growth was in line with the increase in the number of room nights and airline tickets booked during the quarterly periods presented. It was primarily attributable to the continued increase in revenues from our hotel reservation and air-ticketing businesses. Our gross margin has remained at or above 80% throughout the past nine quarters, primarily due to competitive labor costs in China and relatively high efficiency of our customer service system. The growth in our quarterly operating income has generally offset any negative impact caused by the seasonality of the travel industry, except for the SARS period. During the second quarter of 2003, we received financial subsidies of RMB2,431,500 (US$293,762) from the government authorities in Shanghai. As a result, our quarterly operating loss for the second quarter of 2003 due to the SARS outbreak was offset by these financial subsidies.

Our gross profit and income from operations for the quarter ended September 30, 2003 have increased substantially compared to each of the preceding quarters. This increase is principally attributable to (i) the prompt and sharp rebound of the travel industry in China following a three-month travel downturn during the SARS period, (ii) the broader recognition of our Ctrip brand name, and (iii) the efficiency of our established transaction and service platform.

Affiliated Chinese Entities

Due to the current restrictions on foreign ownership of the air-ticketing, travel agency, advertising and Internet content provision businesses in China, we conduct part of our non-hotel reservation businesses through our affiliated Chinese entities. We have entered into consulting and service agreements with each of these entities whereby we provide technical support and other services to them in exchange for service fees from them. In addition, we have also entered into other agreements with them designed to give us control over their operations and secure payment of service fees from them, including share pledge agreements, powers of attorney and operating agreements. Pursuant to the share pledge agreements, Qi Ji, Min Fan and Alex Nanyan Zheng pledge their respective equity interests in our affiliated entities as a guarantee for the payment by these entities of service fees to us. As a result, in the event that any of our affiliated entities breaches any of its obligations under the service agreement with us, we are entitled to (i) sell the equity interests held by Qi Ji, Min Fan and/or Alex Nanyan Zheng, as the case may be, and retain the proceeds from such sale, or (ii) require any of them to transfer his equity interest without consideration to the Chinese citizen(s) designated by us. In addition, Qi Ji, Min Fan and Alex Nanyan Zheng have each executed an irrevocable power of attorney to appoint our President and Chief Financial Officer, Neil Nanpeng Shen, as attorney-in-fact to vote on all matters on which shareholders of our affiliated entities are entitled to vote, including matters relating to the appointment of the chief executive officers of our affiliated entities. Furthermore, pursuant to the operating agreements, our affiliated entities and their shareholders have agreed not to enter into any transaction that would affect the assets, obligations, rights or operations of such entities without our prior written consent. They also agree to accept our guidance with respect to their day-to-day operations, financial management systems and the appointment and dismissal of key employees. Through these arrangements, we have been able to effectively control the management and operations of our affiliated entities.

We hold no ownership interest in any of our affiliated entities. The ultimate principal shareholders of Beijing Chenhao, Shanghai Huacheng and Guangzhou Guangcheng are Qi Ji, who is our co-founder and director, Min Fan, who is our co-founder and executive vice president, and Alex Nanyan Zheng, who is our vice president. Qi Ji and Min Fan own 80% and 20%, respectively, of Beijing Chenhao. Qi Ji and Min Fan own 51% and 49%, respectively, of Ctrip Commerce, and Ctrip Commerce owns 90% of Shanghai Huacheng. Min Fan and Alex Nanyan Zheng own 90% and 10%, respectively, of Guangzhou Guangcheng. We have made loans to Qi Ji, Min Fan and Alex Nanyan Zheng solely in connection with the capitalization or acquisition of our affiliated entities. See “Related Party Transactions — Arrangements with Affiliated Chinese Entities.”

Prior to July 1, 2003, we did not consolidate the financial results of our affiliated Chinese entities. Instead, according to the service agreements then in effect, we earned part of our air-ticketing and packaged-

tour revenues from Beijing Chenhao and Shanghai Huacheng by charging fees for services we rendered to them, including consulting, technology, administrative, marketing and other services. We issued invoices to Beijing Chenhao and Shanghai Huacheng on a monthly basis based on the amount of service fees determined in our sole discretion. We recognized our air-ticketing or packaged-tour revenue when we performed the services to the applicable entity. Historically, we generated less than 5% of our revenues from service fees charged to our affiliated entities. Since July 1, 2003, as required by FIN 46, a new accounting standard, we began to consolidate the financial results of our affiliated Chinese entities. See “— Recent Accounting Pronouncements.” As a result of this change in accounting policy, our results of operations attributable to our affiliated entities are not reflected in our results of operations for the nine months ended September 30, 2003 on the same basis as our results of operations for the same period in 2002. We believe, however, that the application of this change in accounting policy is not material to our financial statements.

Acquisition of Shanghai Cuiming

In order to expand our cross-border packaged-tour business, we recently acquired an effective controlling stake in Shanghai Cuiming, which holds a license to conduct both cross-border and domestic packaged-tour businesses. As part of our acquisition, Min Fan, our co-founder and executive vice president, entered into a share purchase agreement with the shareholders of Shanghai Cuiming in August 2003, pursuant to which Min Fan agreed to pay RMB2.0 million (US$0.2 million) to acquire a 66% ownership interest in Shanghai Cuiming. We made an interest-free loan to Min Fan in a principal amount of RMB4.3 million (US$0.5 million) in connection with the acquisition and expected increase in the capital of Shanghai Cuiming. We have entered into contractual arrangements with Shanghai Cuiming and Min Fan that contain substantially similar terms as our arrangements with our other affiliated Chinese entities. See “Related Party Transactions — Arrangements with Affiliated Chinese Entities.” The acquisition of Shanghai Cuiming does not have a material effect on our consolidated financial condition and result of operations.

Critical Accounting Policies

We prepare financial statements in conformity with U.S. GAAP, which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities on the date of the financial statements and the reported amounts of revenues and expenses during the financial reporting period. We continually evaluate these estimates and assumptions based on the most recently available information, our own historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates. Some of our accounting policies require higher degrees of judgment than others in their application. We consider the policies discussed below to be critical to an understanding of our financial statements as their application places the most significant demands on management’s judgment.

Revenue Recognition. We describe our revenue recognition polices in Note 2 to our consolidated financial statements included elsewhere in this prospectus. In considering Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements” and Emerging Issues Task Force 99-19 “Reporting Revenue Gross as a Principal versus Net as an Agent,” we believe that our policies for revenue recognition and presentation of statement of operations are appropriate. The factors we have considered include whether we are able to achieve the pre-determined specific performance targets by travel suppliers for recognition of the incentive commissions in addition to the fixed-rate and our risk of loss due to obligations for cancelled hotel and airline ticket reservations. As we operate primarily as agent to the travel suppliers and our risk of loss due to obligations for cancelled hotel and airline ticket reservations is minimum, we recognize commissions on a net basis.

Goodwill, Intangible Assets and Long-Lived Assets. In addition to the original cost of goodwill, intangible assets and long-lived assets, the recorded value of these assets is impacted by a number of policy elections, including estimated useful lives, residual values and impairment charges. Statement of Financial Accounting Standards No. 142 provides that intangible assets that have indefinite useful lives and goodwill

will not be amortized but rather will be tested at least annually for impairment. Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-lived Assets” requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable from its undiscounted future cash flow. For each of 2000, 2001, 2002 and the nine months ended September 30, 2003, we did not recognize any impairment charges for goodwill, intangible assets or long-lived assets. If different judgments or estimates had been utilized, material differences could have resulted in the amount and timing of the impairment charge.

Customer Reward Program. We have a customer reward program as described in Note 2 to our consolidated financial statements included elsewhere in this prospectus. Provisions of the customer reward program allow customers to receive travel awards and other gifts based on accumulated membership points that vary depending on the products and services purchased by the customers. Because we have an obligation to provide such travel awards and other gifts, we recognize a liability and corresponding expense for the related future obligations. As of December 31, 2000, 2001 and 2002 and September 30, 2003, our provisions for the customer reward program were RMB109,762, RMB911,526, RMB2,297,403 (US$277,561) and RMB3,470,457 (US$419,284), respectively. We estimate our liabilities under our customer reward program based on accumulated membership points and our estimate of probability of redemption. If actual redemption differs significantly from our estimate, it will result in an adjustment to our liability and the corresponding expense. If our estimate of the probability of redemption increases by 10%, the obligation related to our customer reward program would increase by approximately RMB347,000 (US$41,923).

Share-Based Compensation. We have share option plans to grant stock options to officers, directors, and employees of our company. We account for these plans under Accounting Principles Board Opinion No. 25, the intrinsic value approach, with the required disclosures under the related accounting guidance described in Note 2 to our consolidated financial statements included elsewhere in this prospectus. For 2001, 2002 and the nine months ended September 30, 2003, we recognized share-based compensation under the share option plans in the amounts of nil, RMB21,950, RMB462,140 (US$55,834) and RMB1.03 million (US$124,541), respectively. While we believe that the share-based compensation we recognized for the plans under Accounting Principles Board Opinion No. 25 is appropriate, changes in our assumptions, including estimated fair value of our ordinary shares, will result in an adjustment to our deferred share-based compensation and the corresponding share-based compensation.

Loans to a Director and Officers. We make certain long-term loans to a director and two senior executives of our company for the purpose of establishing and/or acquiring several affiliated Chinese entities, which are used to facilitate our air-ticketing, packaged tour, Internet content provision and advertising services, where foreign ownership is restricted. To the extent losses are incurred by these affiliated entities, we accrue for such losses by recording valuation allowances against the long-term loans to the director and senior executives. For 2000, 2001, 2002 and the nine months ended September 30, 2003, we did not record any valuation allowances for losses incurred by our affiliated Chinese entities. To the extent that the Chinese regulations change or the business conditions of these affiliated entities deteriorate, valuation allowances may be required. For more information about these loans, see “Related Party Transactions — Arrangements with Affiliated Chinese Entities.”

Deferred Tax Valuation Allowances. We have not recorded any valuation allowances to reduce our deferred tax assets, as we believe that our deferred tax asset amounts are more than likely to be realized based on our estimate of future taxable income and prudent and feasible tax planning strategies. As of December 31, 2000, 2001 and 2002 and September 30, 2003, we recorded deferred tax assets of RMB7,496,080, RMB9,837,979, RMB593,143 (US$71,661) and RMB684,155 (US$82,656), respectively. In 2002, we utilized deferred tax assets of RMB9,244,836 (US$1,116,917) accumulated from our operations during prior years, primarily relating to net operating losses carry-forwards. If, however, unexpected events occur in the future that would prevent us from realizing all or a portion of our net deferred tax assets, an adjustment would result in a charge to income in the period in which such determination was made.

Results of Operations

The following table sets forth a summary of our consolidated statements of operations as a percentage of net revenues for the periods indicated.



											Nine Months Ended
		Year Ended December 31,									September 30,

		2000			2001			2002			2002			2003

		(unaudited)									(unaudited)
Revenues:
	Hotel reservation		82.7	%		98.6	%		96.7	%		97.7	%		90.4	%
	Airline ticketing		13.1	%		4.2	%		5.6	%		4.9	%		11.0	%
	Packaged tour		4.8	%		1.4	%		0.4	%		0.6	%		1.6	%
	Others		6.4	%		1.3	%		2.5	%		2.1	%		2.3	%
Less: Business tax and related surcharges			(7.0	)%		(5.5	)%		(5.2	)%		(5.3	)%		(5.3	)%

Net revenues			100.0	%		100.0	%		100.0	%		100.0	%		100.0	%

Cost of services			(30.2	)%		(18.1	)%		(13.7	)%		(13.2	)%		(13.7	)%

Gross profit			69.8	%		81.9	%		86.3	%		86.8	%		86.3	%
Operating expenses:
	Product development		(105.6	)%		(17.6	)%		(13.4	)%		(13.3	)%		(12.5	)%
	Sales and marketing		(269.3	)%		(69.0	)%		(32.2	)%		(34.2	)%		(26.9	)%
	General and administrative		(181.1	)%		(33.7	)%		(15.7	)%		(16.2	)%		(11.8	)%
	Share-based compensation		—			(0.1	)%		(0.5	)%		(0.5	)%		(1.0	)%
	Amortization of goodwill and other intangible assets		(5.7	)%		(4.1	)%		(0.3	)%		(0.4	)%		(0.2	)%
	Other expenses incurred for joint venture companies		—			(2.1	)%		(0.9	)%		(1.3	)%		—

Total operating expenses			(561.7	)%		(126.6	)%		(63.0	)%		(65.9	)%		(52.4	)%

Income (Loss) from operations			(491.9	)%		(44.7	)%		23.3	%		20.8	%		33.9	%

Interest income			11.4	%		5.0	%		0.3	%		0.3	%		0.2	%
Interest expense on short-term bank loan			—			(0.1	)%		0.0	%		0.0	%		—
Other income (expense)			(0.9	)%		(0.2	)%		1.0	%		0.4	%		3.4	%

Income (Loss) before income tax benefit (expense), minority interests and share of loss in joint venture companies			(481.4	)%		(40.0	)%		24.6	%		21.5	%		37.5	%

Income tax benefit (expense)			109.8	%		5.3	%		(10.0	)%		(8.9	)%		(10.4	)%
Minority interests			—			—			0.0	%		0.0	%		0.0	%
Share of income (loss) of joint venture companies			—			—			(0.4	)%		(0.3	)%		0.5	%

Net income (loss) for the period			(371.6	)%		(34.7	)%		14.2	%		12.3	%		27.6	%

Nine Months Ended September 30, 2003 Compared to Nine Months Ended September 30, 2002

Revenues. We generated revenues of RMB111.3 million (US$13.5 million) in the nine months ended September 30, 2003, an increase of 53.7% from RMB72.4 million in the same period in 2002. Although we were adversely affected by the outbreak of SARS in the second quarter of 2003, we were able to achieve increased revenues in the nine months ended September 30, 2003 due to increases in revenues from our hotel reservation and air-ticketing businesses.

Hotel Reservation. For the nine months ended September 30, 2003, revenues from our hotel reservation business increased by 42.1% to RMB95.5 million (US$11.5 million) from RMB67.2 million in the same period in 2002, primarily because of our growing customer base and increased booking of hotel rooms. Although revenue growth in our hotel reservation business in the nine months ended September 30, 2003 was adversely affected by the outbreak of SARS in the second quarter in 2003, our hotel room sales volume increased substantially in the third quarter of 2003, after the SARS outbreak ended.

Air-ticketing. For the nine months ended September 30, 2003, revenues generated from our air-ticketing business increased substantially to RMB11.6 million (US$1.4 million) from RMB3.3 million in the same period in 2002, due to our increased efforts to expand our air-ticketing business and establish relationships with more air-ticketing service companies, offset in part by the impact of SARS.

Packaged-tour. Packaged-tour revenues for the nine months ended September 30, 2003 increased substantially to RMB1.7 million (US$0.2 million) from RMB390,215 in the same period in 2002. This increase was due to our increased efforts to expand our packaged-tour business by leveraging our existing customer base and offering more packaged-tour products.

Other Businesses. For the nine months ended September 30, 2003, revenues from our other businesses increased by 62.8% to RMB2.4 million (US$0.3 million) from RMB1.5 million in the same period in 2002, due to the increased sales of our advertising services and VIP membership cards.

Net Revenues. Our net revenues are derived by subtracting business tax and related surcharges from our revenues. Our net revenues increased by 53.6% from RMB68.8 million in the nine months ended September 30, 2002 to RMB105.7 million (US$12.8 million) in the nine months ended September 30, 2003, as a result of our increased revenues, partially offset by the resulting increase in business tax and related surcharges over the same periods.

Costs of Services. Costs of services for the nine months ended September 30, 2003 increased by 58.8% to RMB14.4 million (US$1.7 million) from RMB9.1 million for the same period in 2002. The increase in costs of services was primarily due to increased salary and benefits largely resulting from the hiring of additional customer service center representatives as well as increased telecommunication expenses resulting from the higher utilization rate of our customer service center.

Our costs of services increased at a higher percentage rate than our net revenues, principally due to the outbreak of SARS. Since we viewed SARS as an event of limited long-term significance, we maintained substantially the same level of staff. To mitigate the impact of SARS, however, we adopted measures to reduce our costs, including unpaid leave for our employees. At the same time, our significantly lower transaction volume reduced our telecommunication expenses, due to lower incoming and outgoing calls, and our salary and benefits, since the compensation of our customer service agents is linked to the number of completed transactions. Notwithstanding these cost-reduction efforts, our costs of services did not decline enough to offset the impact of SARS on our net revenues.

Operating Expenses. Operating expenses in the nine months ended September 30, 2003 increased to RMB55.4 million (US$6.7 million), or 22.0% from RMB45.4 million for the same period in 2002, primarily due to increased product development and sales and marketing expenses. Operating expenses as a percentage of net revenues decreased to 52.4% in the nine months ended September 30, 2003 from 65.9% for the same period in 2002.

Product Development. Product development expenses increased by 44.5% to RMB13.3 million (US$1.6 million) in the nine months ended September 30, 2003 from RMB9.2 million for the same period in 2002, primarily due to the hiring of additional personnel to expand our travel suppliers network.

Sales and Marketing. Sales and marketing expenses increased by 20.8% to RMB28.4 million (US$3.4 million) in the nine months ended September 30, 2003 from RMB23.5 million for the same period in 2002, primarily because of increased expenses incurred in connection with our customer reward program, increased salary and benefit expenses for sales and marketing staff, production of marketing materials and membership cards, as well as increased commissions to our marketing partners for referring customers to us.

General and Administrative. General and administrative expenses increased by 11.3% to RMB12.4 million (US$1.5 million) in the nine months ended September 30, 2003 from RMB11.2 million for the same period in 2002.

Share-Based Compensation. Share-based compensation increased substantially to RMB1.0 million (US$0.1 million) in the nine months ended September 30, 2003 compared to RMB336,127 for the same period in 2002, due to the issuance of additional share options under our 2000 and 2003 stock option plans in the nine months ended September 30, 2003.

Amortization of Goodwill and Other Intangible Assets. Amortization expenses remained stable at RMB264,931 (US$32,008) in the nine months ended September 30, 2003, primarily representing the continuing amortization of a customer list arising from our acquisition of Beijing Modern Express.

Other Expenses Incurred for Joint Venture Companies. We incurred no expenses for joint venture companies in the nine months ended September 30, 2003, but incurred expenses of RMB915,056 over the same period in 2002, because Home Inns and Hotels Management (Beijing) Limited, a joint venture subsidiary of Home Inns, began to bear its own expenses after its establishment in the second half of 2002.

Interest Income and Expenses. Interest income increased to RMB242,577 (US$29,307) in the nine months ended September 30, 2003 from RMB216,972 in the same period in 2002 because of the increase in our bank deposits. Interest expense decreased to zero in the nine months ended September 30, 2003 from RMB41,261 (US$4,985) for the same period in 2002, because we repaid our bank loan in early 2002.

Other Income. Other income increased substantially to RMB3.5 million (US$0.4 million) in the nine months ended September 30, 2003 from RMB263,044 in the same period in 2002, because we received financial subsidies totaling RMB3,354,450 (US$405,269), RMB922,950 (US$111,506) of which were granted for entities impacted by SARS from the government authorities in Shanghai in 2003.

Income Tax Expense. Income tax expense for the nine months ended September 30, 2003 increased by 78.2% to RMB11.0 million (US$1.3 million) from RMB6.2 million for the nine months ended September 30, 2002, primarily because of the increase of our taxable income.

Net Income. Net income increased by 245.2% to RMB29.2 million (US$3.5 million) in the nine months ended September 30, 2003 from RMB8.5 million for the same period in 2002, primarily due to an increase in income from operations, offset in part by the negative impact of the outbreak of SARS.

2002 Compared to 2001

Revenues. We had revenues of RMB105.3 million (US$12.7 million) in 2002, an increase of 127.1% over RMB46.4 million in 2001. This revenue growth was principally the result of the expansion of our hotel reservation business, supplemented by the growth in our air-ticketing business.

Hotel Reservation. Revenues from our hotel reservation business increased substantially by 123.1% to RMB96.8 million (US$11.7 million) in 2002 from RMB43.4 million in 2001, primarily as a result of the continued rapid increase in our hotel room sales volume and the “ratchet system” commission arrangement with many of our hotel suppliers.

Air-ticketing. Revenues from our air-ticketing business increased substantially by 205.7% to RMB5.6 million (US$0.7 million) in 2002 from RMB1.8 million in 2001, primarily due to our efforts to expand the customer base for our air-ticketing business in 2002, including the enhancement of our fulfillment channel under various service agreements with third parties and Beijing Chenhao, and the acquisition of the air-ticketing business of Beijing Hai’an Air-ticketing Agency.

Packaged-tour. Packaged-tour revenues decreased by 27.3% to RMB432,295 (US$52,228) in 2002 compared to RMB594,802 in 2001, primarily because of our decision to reduce the amount of consulting fees that we charged to Shanghai Huacheng to enable Shanghai Huacheng to fund its operating requirements.

Other Businesses. Revenues from our other businesses increased substantially to RMB2,517,316 (US$304,130) in 2002 from RMB576,075 in 2001, primarily due to the increased sales of our advertising services and VIP membership cards in 2002.

Net Revenues. Our net revenues increased from RMB44.0 million in 2001 to RMB100.0 million (US$12.1 million) in 2002 as a result of our increased revenues, partially offset by the resulting increase in business tax and related surcharges over the same periods.

Costs of Services. Costs of services in 2002 increased by 72.2% to RMB13.7 million (US$1.7 million) from RMB7.9 million in 2001. The increase in our costs of services was primarily attributable to the hiring of additional customer service representatives as well as increased telecommunication expenses resulting from the overall expansion of our hotel reservation and air-ticketing businesses.

Operating Expenses. Operating expenses in 2002 increased to RMB63.1 million (US$7.6 million), or 13.3% over RMB55.7 million in 2001, primarily due to a significant increase in product development expenses and a slight increase in sales and marketing expenses, partially offset by amortization of goodwill and other intangible assets. Operating expenses as a percentage of net revenues decreased to 63.0% in 2002 from 126.6% in 2001, because our revenues increased substantially while our established transaction and service platform was able to keep up with the increased transaction volume without the need to incur expenses at a rate similar to our revenue growth.

Product Development. Product development expenses increased by 72.2% to RMB13.4 million (US$1.6 million) in 2002 from RMB7.8 million in 2001, primarily due to the hiring of additional staff to expand our travel supplier network and additional technical support staff and the related increase in office expenses.

Sales and Marketing. Sales and marketing expenses increased by 6.4% to RMB32.3 million (US$3.9 million) in 2002 from RMB30.4 million in 2001, primarily due to increased commission payments to our marketing partners that referred customers to us, increased expenses in connection with our customer reward program and the installation of additional marketing counters at airports. The increase was offset in part by a decrease in compensation to sales and marketing personnel resulting from changes in our compensation structure.

General and Administrative. General and administrative expenses increased by 6.0% to RMB15.7 million (US$1.9 million) in 2002 from RMB14.8 million in 2001.

Share-Based Compensation. Share-based compensation expenses increased substantially to RMB462,140 (US$55,834) in 2002 from RMB21,950 in 2001, due to the issuance of additional share options under our 2000 stock option plan.

Amortization of Goodwill and Other Intangible Assets. Amortization expenses decreased by 80.4% from RMB1.8 million in 2001 to RMB353,241 (US$42,677) in 2002, because we did not recognize in 2002 any further amortization expenses on goodwill arising from the 2000 acquisition of Beijing Modern Express, following the adoption in 2002 of a new accounting policy, and because the marketing agreement that we acquired from Beijing Modern Express was fully amortized in 2001.

Other Expenses Incurred for Joint Venture Companies. Other expenses, mainly consisting of payroll compensation and related expenses incurred for joint venture companies, remained stable at RMB915,056 (US$110,553) in 2002.

Interest Income and Expenses. Interest income decreased by 85.4% from RMB2.2 million in 2001 to RMB319,230 (US$38,568) in 2002, primarily due to a significant reduction in the interest rate for our bank deposits. Interest expenses decreased to RMB41,261 (US$4,985) in 2002 from RMB62,058 in 2001, because we repaid our short-term RMB bank loan in early 2002.

Other Income (Expense). Other income increased substantially to RMB1.0 million (US$0.1 million) in 2002 from other expenses of RMB79,858 in 2001, principally because we received financial subsidies of RMB783,900 (US$94,707) from a government authority in Shanghai in 2002.

Income Tax Benefit (Expense). Income tax expense substantially increased to RMB10.0 million (US$1.2 million) in 2002 compared to income tax benefit of RMB2.3 million in 2001, primarily because we started to generate taxable income in 2002.

Net Income (Loss). Net income increased to RMB14.2 million (US$1.7 million) in 2002 compared to a net loss of RMB15.3 million in 2001, as a result of the cumulative effect of the above factors.

2001 Compared to 2000

Revenues. We had revenues of RMB46.4 million in 2001, an increase of 571.4% over RMB6.9 million in 2000. This revenue growth was mostly driven by our increased revenues from the hotel reservation business.

Hotel Reservation. Revenues from our hotel reservation business increased substantially by 712.5% to RMB43.4 million in 2001 from RMB5.3 million in 2000, primarily due to our acquisition of an increasing number of hotel suppliers and customers, and also due to our acquisition of Beijing Modern Express in October 2000.

Air-ticketing. Revenues from our air-ticketing business increased substantially by 116.6% to RMB1.8 million in 2001 from RMB845,776 in 2000, primarily due to our expanded customer base and related transaction volume.

Packaged-tour. Packaged-tour revenues increased by 91.4% to RMB594,802 in 2001 from RMB310,750 in 2000, primarily due to our expanded customer base and the resulting increased sales of our packaged-tour products.

Other Businesses. Revenues from our other lines of business increased by 39.5% to RMB576,075 in 2001 compared to RMB412,940 in 2000, primarily because we began to sell our VIP membership cards in 2001. This increase was partially offset by a decrease in our online advertising revenue due to reduced demand.

Net Revenues. Our net revenues increased from RMB6.5 million in 2000 to RMB44.0 million in 2001 as a result of our increased revenues, partially offset by the resulting increase in business tax and related surcharges over the same periods.

Costs of Services. Costs of services in 2001 substantially increased to RMB7.9 million from RMB1.9 million in 2000. The increase in costs of services was primarily attributable to increased staff costs and increased telecommunication expenses in our customer service center as a result of the overall expansion of our business.

Operating Expenses. Operating expenses in 2001 increased by 53.7% to RMB55.7 million from RMB36.2 million in 2000, primarily due to increases in sales and marketing and general and administrative expenses and amortization of goodwill and other intangible assets.

Product Development. Product development expenses increased by 13.8% to RMB7.8 million in 2001 from RMB6.8 million in 2000, primarily due to hiring more personnel in hotel relationship management and technology support and development, as well as increases in office expenses and telecommunications expenses necessary to enhance our transaction and service platform.

Sales and Marketing. Sales and marketing expenses increased by 74.7% to RMB30.4 million in 2001 from RMB17.4 million in 2000, primarily because we committed significant resources to exploring additional sales and marketing channels.

General and Administrative. General and administrative expenses increased by 26.9% to RMB14.8 million in 2001 from RMB11.7 million in 2000, primarily due to increases in staff costs and travel expenses in connection with the overall expansion of our hotel reservation business.

Share-Based Compensation. We incurred RMB21,950 share-based compensation in 2001 for the amortization of deferred share-based compensation related to share options granted during that period.

Amortization of Goodwill and Other Intangible Assets. Amortization expenses increased substantially from RMB370,822 in 2000 to RMB1.8 million in 2001, because we recorded the full-year amortization expenses of goodwill and intangible assets, including customer list and marketing agreements, with respect to our acquisition of Beijing Modern Express, which we acquired in October 2000.

Other Expenses Incurred for Joint Venture Companies. We incurred other expenses, mainly consisting of payroll compensation and related expenses for joint venture companies, in the amount of RMB934,572 in 2001, but we did not incur such expenses in 2000. These expenses were incurred in relation to the development of hotel management business prior to the establishment of Home Inns.

Interest Income and Expenses. Interest income increased by 198.0% to RMB2.2 million in 2001 from RMB735,178 in 2000, because we raised a substantial amount of funds near the end of 2000, a portion of which were invested in time deposits. We incurred interest expenses of RMB62,058 in 2001, and none in 2000, because we obtained a short-term RMB bank loan to meet the RMB expense requirements in 2001.

Other Expenses. Other expenses increased marginally to RMB79,858 in 2001.

Income Tax Benefit. Income tax benefit in 2001 decreased by 67.0% to RMB2.3 million from RMB7.1 million in 2000, primarily due to the decrease in losses incurred to RMB17.6 million in 2001 from RMB31.0 million in 2000. The decrease in income tax benefit in 2002 was a result of an increase in non-deductible expenses.

Net Loss. Our net loss decreased by 36.3% to RMB15.3 million in 2001 from RMB24.0 million in 2000, primarily because our revenues increased significantly while our established transaction and service platform was able to keep up with the increased transaction volume without the need to incur expenses at a rate similar to our revenue increase rate.

Liquidity and Capital Resources

Liquidity. The following table sets forth the summary of our cash flows for the periods indicated:



	Year Ended December 31,												Nine Months Ended September 30,

	2000			2001			2002			2002			2002			2003			2003

	(unaudited)												(unaudited)
	RMB			RMB			RMB			US$			RMB			RMB			US$

	(in thousands)
Net cash provided by (used in) operating activities		(28,584	)		(19,891	)		23,427			2,830			10,815			37,604			4,543
Net cash provided by (used in) investing activities		(13,648	)		(30,593	)		3,427			414			11,626			(11,858	)		(1,433	)
Net cash provided by (used in) financing activities		128,187			4,000			(30,425	)		(3,676	)		(3,456	)		5,589			675
Net increase (decrease) in cash and cash equivalents		85,977			(46,444	)		(3,532	)		(427	)		19,025			31,422			3,796
Cash at beginning of period		2,931			88,908			42,464			5,130			42,464			38,931			4,703
Cash at end of period		88,908			42,464			38,931			4,703			61,488			70,353			8,500

Net cash provided by operating activities was RMB37.6 million (US$4.5 million) for the nine months ended September 30, 2003, compared to RMB10.8 million for the same period in 2002. Net cash provided by operating activities was RMB23.4 million (US$2.8 million) in 2002 compared to net cash used in operating activities of RMB19.9 million in 2001. We began to have positive net cash flow in the fourth quarter of 2001. The increase in our net revenue resulting from our increased transaction volume, coupled with the low-cost structure of our operations and high utilization rate of our transaction and service platform, primarily contributed to our positive net cash position.

Net cash used in investing activities amounted to RMB11.9 million (US$1.4 million) for the nine months ended September 30, 2003, compared to net cash provided by investing activities of RMB11.6 million for the nine months ended September 30, 2002. This change was mainly due to the

withdrawal of our short-term time deposit in the nine months ended September 30, 2002. Net cash provided by investing activities amounted to RMB3.4 million (US$0.4 million) in 2002, compared to net cash used in investing activities of RMB30.6 million in 2001, principally due to our purchase of a short-term time deposit in 2001 and the subsequent withdrawal in 2002, the purchase of the air-ticketing business of Beijing Hai’an of RMB2.6 million (US$0.3 million) and our premises in Shanghai of RMB7.2 million (US$0.9 million) as well as the investment of RMB5.5 million (US$0.7 million) in Home Inns Beijing in 2002. Net cash used in investment activities amounted to RMB13.6 million in 2000, mainly consisting of the cash consideration of RMB8.0 million paid for the purchase of Beijing Modern Express, and the loans of RMB2.0 million extended to related parties for the acquisition or establishment of certain affiliated entities.

Net cash provided by financing activities amounted to RMB5.6 million (US$0.7 million) for the nine months ended September 30, 2003, compared to net cash used in financing activities of RMB3.5 million for the nine months ended September 30, 2002, because we agreed to use the entire proceeds from the issuance of Series C preferred shares to redeem some of our outstanding shares held by our existing shareholders and pay for professional services related to the issuance of Series C preferred shares, but we did not receive payment instructions from some of our shareholders in September 2003. We have recently paid off all of the remaining shareholders in connection with redemption of some of their shares. Net cash used in financing activities was RMB30.4 million (US$3.7 million) in 2002, compared to net cash provided by financing activities of RMB4.0 million in 2001. This change was due to our payment of cash dividends in the amount RMB27.3 million (US$3.3 million) in 2002 and entering into our RMB4.0 million short-term bank loan in 2001. Net cash provided by financing activities of RMB128.2 million in 2000 represented the net proceeds from issuance of Series A preferred shares and Series B preferred shares.

Capital Resources. We have historically financed our capital expenditure requirements with cash flows from operations, as well as through the sale of our Series A preferred shares and Series B preferred shares.

We made capital expenditures of RMB4.6 million, RMB5.8 million, RMB13.2 million (US$1.6 million) and RMB8.1 million (US$1.0 million) in 2000, 2001, 2002 and the nine months ended September 30, 2003, respectively, and expect to make additional capital expenditures totaling approximately RMB5.0 million (US$0.6 million) for the rest of 2003 and approximately RMB16.0 million (US$1.9 million) for 2004. The capital expenditures in the past principally consisted of purchases of servers, workstations, computers, computer software, and other items related to our network infrastructure. In addition, we spent RMB7.2 million (US$0.9 million) in 2002 to purchase most of our premises in Shanghai. We expect our capital expenditures in 2003 to primarily consist of purchases of additional information technology-related equipment. In addition, we expect that our capital expenditures will increase in the future as we make technological improvements to our transaction and service platform.

As of September 30, 2003, our primary source of liquidity was RMB70.4 million (US$8.5 million) of cash. In 2001, we borrowed a RMB4.0 million short-term bank loan with an annual interest rate of 6.138%. We repaid this loan in its entirety in early 2002. We have no outstanding bank loans or financial guarantees or similar commitments to guarantee the payment obligations of third parties.

We believe that our current cash and cash equivalents, cash flow from operations and the proceeds from this offering will be sufficient to meet our anticipated cash needs, including our cash needs for working capital and capital expenditures, for the foreseeable future. We may, however, require additional cash resources due to changing business conditions or other future developments, including any investments or acquisitions we may decide to pursue.

Contractual Cash Obligations

We have entered into leasing arrangements relating to office premises, equipment and others that are classified as operating leases. The following sets forth our commitments under operating leases as of September 30, 2003:


	Office		Equipment and
	Premises		Others		Total


	(in thousands of RMB)
Less than 1 year		2,432,119		3,984,660		6,416,779
1-3 years		623,704		536,985		1,160,689
3-5 years		—		—		—
More than 5 years		—		—		—

Other than the leasing obligations set forth above, we do not have any long-term commitments.

Off-Balance Sheet Arrangements

We do not have any outstanding derivative financial instruments, off-balance sheet guarantees, interest rate swap transactions or foreign currency forward contracts. We do not engage in trading activities involving non-exchange traded contracts.

Principal Accountant Fees and Services

The following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered by PricewaterhouseCoopers, our principal external auditors, for the periods indicated. We did not pay any tax related or other fees to our auditors during the periods indicated below.

For the Year Ended December 31,

2001(1)

2002

Audit fees(2)

RMB304,620

RMB424,375

US$

51,253

Audit-related fees(3)

—

23,167

2,798


(1)	Audit fees paid to external auditors in 2001 represent fees billed by Arthur Andersen •Hua Qiang Certified Public Accountants, our then principal external auditors.

(2)	“Audit fees” means the aggregate fees billed in each of the fiscal years listed for professional services rendered by our principal auditors for the audit of our annual financial statements.

(3)	“Audit-related fees” means the aggregate fees billed in each of the fiscal years listed for assurance and related services by our principal auditors that are reasonably related to the performance of the audit or review of our financial statements and are not reported under “Audit fees.” Services comprising the fees disclosed under the category of “Audit-related fees” involve principally the performance of certain agreed upon procedures.

Inflation

Inflation in China has not had a material impact on our results of operations in recent years. According to the National Bureau of Statistics of China, the change in Consumer Price Index in China was 0.4%, 0.7%, (0.8%) and 0.6% in 2000, 2001, 2002 and the six months ended June 30, 2003, respectively.

Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk. Our exposure to interest rate risk for changes in interest rates relates primarily to the interest income generated by excess cash deposited in banks. We have not used any derivative financial instruments to hedge interest rate risk. We have not been exposed nor do we anticipate being exposed to

material risks due to changes in interest rates. Our future interest income may fluctuate in line with changes in interest rates. However, the risk associated with fluctuating interest rates is principally confined to our cash deposits in banks, and, therefore, our exposure to interest rate risk is minimal and immaterial.

Foreign Exchange Risk. We are exposed to foreign exchange risk arising from various currency exposures. Some of our expenses, including rent for our Hong Kong office and salaries of employees located in Hong Kong, is denominated in foreign currencies while almost all of our revenue is denominated in RMB. We have not used any forward contracts or currency borrowings to hedge our exposure to foreign currency risk. Therefore, our exposure to foreign exchange risks is minimal and immaterial.

Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 143, “Accounting for Asset Retirement Obligations,” which addresses accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. This statement requires that an entity recognize an asset retirement obligation in the period in which it is incurred, and the entity shall capitalize the asset retirement cost by increasing the carrying amount of the related asset by the same amount as the liability and subsequently allocate that retirement cost to expense over the asset’s useful life. This statement is effective for fiscal years beginning after June 15, 2002. We do not expect that the adoption of this statement will have a material effect on our financial position or results of operations.

In April 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 145, “Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections.” Statement of Financial Accounting Standards No. 145 requires gains and losses on extinguishments of debt to be classified as income or loss from continuing operations, rather than as extraordinary items, as previously required under Statement of Financial Accounting Standard Board No. 4, “Reporting Gains and Losses from Extinguishment of Debt, an amendment of APB Opinion No. 30.” Extraordinary treatment will be required for certain extinguishments, as provided in APB Opinion No. 30, “Reporting the Results of Operations — Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions.” The statement also amended Statement of Financial Accounting Standards No. 13 “Accounting for Leases” for certain sale-leaseback transactions and sublease accounting. This statement is effective since January 1, 2003. The adoption of this statement did not have a material effect on our financial position or results of operations.

In December 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure.” This statement amends Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation,” to provide alternative methods of transition for companies that voluntarily change to a fair value-based method of accounting for share-based employee compensation. This statement also amends the disclosure provisions of Statement of Financial Accounting Standards No. 123. The provisions of Statement of Financial Accounting Standards No. 148 are effective for fiscal years ending after December 15, 2002. We have elected to continue to account for share-based compensation under the provisions of APB 25 and have followed the disclosure requirements under Statement of Financial Accounting Standards No. 148.

In June 2002, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” Statement of Financial Accounting Standards No. 146 nullifies Emerging Issues Task Force Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity,” under which a liability for an exit cost was recognized at the date of an entity’s commitment to an exit plan. This statement requires that a liability for a cost associated with an exit or disposal activity be recognized at fair value when the liability is incurred. The provisions of this statement are effective for exit or disposal activities that are initiated after December 31, 2002. We do not believe that this announcement will have a significant impact on our financial statements.

In November 2002, the Financial Accounting Standards Board issued Financial Accounting Standards Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, including Indirect Guarantees of Indebtedness of Others.” Statement of Financial Accounting Standards Interpretation No. 45 requires the recognition of a liability for certain guarantee obligations issued or modified after December 31, 2002. This statement also clarifies disclosure requirements to be made by a guarantor for certain guarantees. The disclosure provisions of Statement of Financial Accounting Standards Interpretation No. 45 are effective for interim periods and fiscal years ending after December 15, 2002. The adoption of this statement did not have a material effect on our financial position or results of operations.

In January 2003, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards Interpretation No. 46, “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.” This statement requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. Statement of Financial Accounting Standards Interpretation No. 46 is effective for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities created or acquired prior to February 1, 2003, this statement must be adopted for the first interim or annual period beginning after June 15, 2003. The financial statements of Guangzhou Guangcheng, an affiliated Chinese entity established on April 28, 2003, were consolidated into our financial statements on the date of establishment, while the financial statements of Ctrip Commerce, Shanghai Huacheng and Beijing Chenhao, all of which were established prior to January 31, 2003, was consolidated into our financial statements starting the third quarter of 2003. The adoption of FIN 46 did not have a significant impact on the presentation of our historical financial statements as of December 31, 2000, 2001 and 2002 and September 30, 2003 and for the years and the nine months then ended.

In June 2003, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” This statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities.” It is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. All provisions of Statement of Financial Accounting Standards No. 149 should be applied prospectively. The adoption of this statement did not have a material effect on our financial position or results of operations.

In June 2003, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability (or as an asset in some circumstances). It is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. It is to be implemented by reporting the cumulative effect of a change in an accounting principle for financial instruments created before the issuance date of this statement and still existing at the beginning of the interim period of adoption. Restatement is not permitted. The adoption of this statement did not have a material effect on our financial position or results of operations.

BUSINESS

Overview


	•	choose and reserve hotel rooms in cities throughout China and selected cities abroad;

	•	book and purchase airline tickets for domestic and international flights originating from China; and

	•	choose and reserve packaged tours that include transportation, accommodation, and sometimes guided tours as well.

For the nine months ended September 30, 2003, we derived 85.8% of our revenues from the hotel reservation business and 10.5% of our revenues from our air-ticketing business. Our packaged-tour business contributed 3.7% of our revenues for the nine months ended September 30, 2003.

September 30, 2003, we generated revenues of RMB111.3 million (US$13.4 million) and net income of RMB29.2 million (US$3.5 million) despite the outbreak of SARS during the second quarter of 2003.

Our business was commenced in June 1999. In March 2000, we established a new holding company, Ctrip.com International, Ltd., in the Cayman Islands, and soon thereafter, all of the shareholders of Ctrip.com (Hong Kong) Limited, our now directly wholly owned subsidiary, transferred their shares to the holding company in exchange for shares of the holding company. Since we commenced our operation, we have conducted substantially all of our operations in China. We operate as a foreign investment enterprise in China through our subsidiaries, Ctrip Computer Technology and Ctrip Travel Information, as well as our affiliated Chinese entities, including


	•	Ctrip Commerce, which holds advertising and Internet content provision licenses;

	•	Shanghai Huacheng, which holds domestic travel agency and air-ticketing licenses;

	•	Beijing Chenhao, which holds an air-ticketing license;

	•	Guangzhou Guangcheng, which has recently received an air-ticketing license; and

	•	Shanghai Cuiming, which holds a license to conduct both cross-border and domestic packaged-tour businesses.

We hold no ownership interest in any of our affiliated Chinese entities. Qi Ji, a co-founder and director of our company, Min Fan, a co-founder and executive vice president of our company, and Alex Nanyan Zheng, a vice president of our company, are the principal shareholders of our affiliated Chinese entities. See “Prospectus Summary — Corporate Structure” for the place of formation, ownership interest and affiliation of each of our subsidiaries and affiliated entities. We have made interest-free loans to Qi Ji, Min Fan and Alex Nanyan Zheng solely in connection with the capitalization or acquisition of our affiliated entities. Each of these loans will mature ten years after the date of the applicable loan agreement. In the event that the Chinese government lifts its restrictions on foreign ownership of the air-ticketing, travel agency, advertising or Internet content provision business in China, we will exercise our right to purchase all of the outstanding equity interests of our affiliated Chinese entities immediately, and the loans will be cancelled in connection with such purchase. For a detailed description of the terms of these loans, see “Related Party Transactions — Arrangements with Affiliated Chinese Entities.”

Our principal executive offices are located at 3F, Building 63-64, No. 421 Hong Cao Road, Shanghai 200233, People’s Republic of China, and our telephone number is (8621) 3406-4880. We have appointed CT Corporation System, 111 Eighth Avenue, New York, NY 10011, as our agent for service of process in the United States.

Industry Background

Growth of the Chinese Travel Industry. The Chinese travel industry is large and growing rapidly. The following chart contains certain data from CEIC Data Company Limited concerning the Chinese economy and the travel industry during the period from 1998 through 2002.


					Number of		Number of
	Nominal Gross		Expenditure on		3-, 4- and 5-Star		Civil Aviation
	Domestic Product		Tourism		Hotels in Operation		Passenger Kilometers

	(in billions of RMB)		(in millions of RMB)				(in billions)
1998		7,835		239,118		1,325		80,024
1999		8,207		283,192		1,573		85,728
2000		8,947		317,554		2,368		97,054
2001		9,731		352,237		2,857		109,135
2002		10,479		387,836		3,656		126,870

China’s gross domestic product grew from RMB7,835 billion in 1998 to RMB10,479 billion (US$1,266 billion) in 2002, representing a compound annual growth rate of 7.5% during this period. The aggregate expenditure on tourism in China increased from RMB239.1 billion in 1998 to RMB387.8 billion (US$46.9 billion) in 2002, representing a compound annual growth rate of 12.8% during this period. According to China’s tenth five-year plan, the Chinese government expects an approximately 7% compound annual growth rate of China’s gross domestic product from 2000 to 2005. We anticipate that demand for travel services in China will continue to increase substantially in the foreseeable future as the Chinese economy continues to grow.

The statistics included in this prospectus relating to the Chinese travel industry and economy are derived from various government and institute research publications. We have not independently verified such information, and you should not unduly rely upon it.

Fragmented Hotel and Air-ticketing Industries. The travel intermediary industries are highly fragmented in China. According to CEIC Data Company Limited, as of December 31, 2002, there were 3,656 three-, four-and five-star hotels in China. The biggest hotel chain in China, the Jin Jiang Group, manages approximately 70 hotels. Furthermore, China does not have any nationwide hotel distribution system among travel intermediaries. As a result, travelers traditionally do not have access to comprehensive information on hotels. In the air-ticketing sector, the Civil Aviation Administration of China, or CAAC, requires an air-ticketing agency to obtain a separate license from CAAC’s regional branch in order to conduct business in any city. This requirement has hindered the ability of local air-ticketing agencies to expand nationwide.

Growing but Under-served Independent Travelers in China. The rapid growth of the Chinese economy in the past decade has led to a substantial increase in business activity and personal disposable income, as well as changes in consumption patterns. As a result, there has been a significant increase in the demand for travel services in China. However, as travel agencies in China often focus on tour groups and devote limited resources to serving independent travelers, independent travelers have limited access to discounted rates or comprehensive information on hotels and flights.

Functions of Travel Consolidators. Travel consolidators like us are able to offer information aggregated from various hotels and airlines to independent travelers, enabling them to make informed and cost-effective hotel and flight bookings through customer service centers or websites. To both the hotel and airline industries, travel consolidators offer an efficient distribution platform that improves occupancy levels and helps increase overall revenues. To independent travelers, travel consolidators are a new and more reliable source offering access to the generally wider selection of inventory and lower rates than those otherwise available.

Usage of Customer Service Centers in the Travel Industry. Call centers or customer service centers are a relatively new concept in China but provide an effective channel to distribute travel products and services. Travelers can gather and evaluate travel information, receive recommendations from customer service representatives and book transactions more efficiently by contacting customer service centers any time,

day or night, instead of visiting travel agents who generally offer services only during daytime business hours, tend to focus on group tours and typically require in-person visits. In addition, the increasing number of mobile phone users in China, with approximately 250.0 million mobile phone users as of September 30, 2003 according to CEIC Data Company Limited, is expected to enhance the popularity of using customer service centers, since travelers can now call to change their travel plans after they have already begun their trip, when public telephones are often unavailable. In addition, competitive labor costs in China have allowed customer service centers to become a cost-effective transaction tool in China.

Growth of the Internet and Online Commerce. According to the China Internet Network Information Center, China now ranks second in the world in terms of number of Internet subscribers. The Internet’s broadly distributed and easily accessible environment creates the ideal foundation for new marketplaces, which provide increased search efficiency, comprehensive information and competitive pricing. The Internet brings efficiencies to markets characterized by the presence of large number of geographically dispersed buyers and sellers and purchase decisions involving large amounts of information from multiple sources. We believe that the travel industry, which inherently involves broadly dispersed travelers as well as a wide selection of travel suppliers in terms of location and price, is especially well-suited to benefit from increased Internet and online commerce adoption.

Our Strengths

We bridge the gap between independent travelers and travel suppliers. Through our sophisticated transaction and service platform consisting of our centralized toll-free, 24-hour customer service center and bilingual websites, we serve primarily the traditionally underserved yet fast growing independent travelers segment in China by helping them plan and book their trips while helping travel suppliers improve the efficiency of their marketing and distribution. We have achieved a leading position, in part, by establishing the competitive strengths described below.

A Leading Travel Brand in China. We have invested significant resources in developing and promoting our brand since our inception. The China Travel Journal ranked our Ctrip brand among the top travel brands in China in 2002. The broad recognition of our Ctrip brand has enhanced our ability to quickly attract new travel customers, especially frequent independent travelers, as evidenced by the rapid growth of our customer base and transaction volume.

Our reputation and market position have also provided us with easier and more effective access to hotels and airlines nationwide. We are able to obtain guaranteed allotment arrangements from over 490 of our hotel suppliers. These arrangements enable us to offer a specified number of hotel rooms during any given month to our customers without taking any inventory risk and to confirm the room reservations instantly.

Large Supplier Network and Nationwide Coverage. We have established supplier relationships with over 1,700 hotels across all major geographic regions in China and over 450 hotels abroad, as of October 31, 2003. We have also cultivated supplier relationships with all major domestic Chinese airlines and many international airlines that operate flights originating from China. We believe we are the only airline ticket consolidator in China with a centralized 24-hour information and reservation center and a settlement and delivery infrastructure covering all of the most economically prosperous regions of China. Our broad supplier network has enabled us to offer a broad range of travel product and service offerings, including packaged tours, for our independent traveler customers. We believe that our established and extensive supplier relationship positions us well to compete with existing and potentially new competitors.

Scalable Platform and Flexible Cost Structure. We have created a cost-effective transaction and service platform consisting of our customer service center and websites. Our business is highly scalable because of the low costs associated with our transaction and service platform. We can hire and train new representatives for our customer service center quickly and cost-effectively to cope with the expected increase in transaction volume, because of the relatively low labor cost in China, as well as our ability to efficiently train new staff to serve customers. Our technology platform offers further scalability advantages as we can upgrade our existing infrastructure with limited additional investment. Therefore, we believe that we can keep up with the expected pace of increase in our transaction volume without incurring substantial incremental

costs. In addition, the compensation of our customer service representatives, which forms a significant portion of our costs of services, is linked to the number of transactions successfully completed by them. In part because of our relatively flexible cost structure, we were able to maintain positive net income in the second quarter of 2003 despite the significant negative impact of the SARS outbreak.

Excellent Customer Service. We place significant emphasis on technology, personnel and training to facilitate superior customer service. We operate our centralized toll-free customer service center 24 hours a day and seven days a week to provide comprehensive and real-time assistance to our customers. Our customer service representatives are equipped to review a comprehensive list of the hotels in individual markets, together with the related price, amenities and availability information, and real-time flight information, while simultaneously booking hotels, airline tickets and packaged tours for customers. Our customer service representatives are also trained to provide travel advisory services at our customers’ request. Moreover, our user-friendly websites allow customers to quickly review hotel and flight information and book hotel accommodations and airline tickets and, in some instances, receive instant confirmation.

In addition, we maintain a customer database containing information on the transaction history and preferences of each customer who has booked a travel product through us. We also have a post-transaction customer service division responsible for addressing any issues or concerns raised by our customers. We believe our excellent customer service has contributed to our large number of repeat customers.

Advanced Infrastructure and Technology. We have developed an advanced infrastructure and technology platform with a high level of reliability, security and scalability. At the front end, our system allows us to ensure service quality by promptly processing customer inquiries and requests and by monitoring the performance of our customer service representatives on an around-the-clock basis. As a result, we maintain an extremely high service ratio with very limited aborted calls due to unacceptably long waiting time. Our websites are custom-built in-house to exacting specifications to ensure the best user experience. Our websites, www.ctrip.com and www.gotochina.com, have user-friendly designs with well laid-out information. We work closely with our web host to ensure that our customers can obtain the desired information and complete transactions with us quickly and securely.

At the back end, our proprietary booking software allows us to update hotel room and airline ticket availability and pricing information. The real-time nature of our software system allows us to recommend our preferred hotels to customers when they request a recommendation. Our booking software is integrated with our websites and customer service center operations. In addition, we have developed an electronic confirmation system that enables us to transmit a customer’s booking information to those hotels that are linked to this system and to receive confirmation from these hotels. We believe that our advanced transaction and service platform is capable of handling increasing traffic without substantial incremental costs.

Experienced Management Team. Our senior managers have on average more than eight years of experience in their relevant fields of information technology, finance and travel management. Key members of our management team include James Jianzhang Liang, our Chief Executive Officer, Neil Nanpeng Shen, our Chief Financial Officer, and Min Fan, our Executive Vice President, all of whom are founders of our company. Prior to joining us, Mr. Liang had worked in the information technology field in Silicon Valley and China for over eight years, Mr. Shen had worked at leading global investment banks in New York and Hong Kong for over eight years, and Mr. Fan had been the chief executive officer for one of the leading domestic travel agencies in Shanghai for over three years. Under our management team’s leadership, we have experienced substantial growth in our transaction volume and customer base and have successfully integrated the businesses we acquired into our operation. Our senior managers have indicated their intent to continue to manage the company after this offering.

Our Strategy

Our goal is to create long-term shareholder value by enhancing our position as a leading hotel and air-ticket consolidator in China. We believe that China’s highly fragmented travel industry and underserved

frequent independent traveler market provide us with significant growth opportunities. We intend to pursue the following strategies to achieve our goal:

Leverage and Strengthen the Ctrip Brand. To hotel and airline ticket suppliers, the Ctrip brand represents a sizable and increasingly important source of customers. We intend to leverage this reputation to attract new suppliers, and negotiate more favorable contractual terms with our existing suppliers. To our marketing partners, Ctrip is regarded as a partner that enhances their product offerings. We aim to deepen our existing relationships with our marketing partners and establish new relationships with other potential marketing partners, allowing us to further promote our brand, cross-sell our products and acquire customers in a more cost-effective manner.

In addition, we intend to further strengthen Ctrip as a dominant consumer travel brand. We plan to continue to pursue a focused marketing and advertising campaign through various targeted promotions to acquire new customers and encourage our existing customers to transact more frequently. For example, we distribute membership cards through in-flight magazines to attract new customers, and we maintain a membership reward program that offers rewards to frequent customers to encourage repeat transactions.

Expand Our Hotel Supplier Network and Room Inventory. Although we believe that we are the largest hotel consolidator in China in terms of gross bookings, there are significant opportunities to further expand our hotel reservation service. We plan to focus the expansion of our hotel reservation business on hotels with three-, four- and five-star ratings, which offer us higher profit margins per transaction. We intend to build upon our already extensive hotel supplier relationships in China’s major cities such as Beijing and Shanghai. In addition, we intend to enhance our presence in selected regional centers and medium-sized cities that offer significant growth opportunities driven by China’s robust economy and rising disposable income per capita.

We plan to capitalize on our substantial and growing customer base and transaction volume by continuing to negotiate with hotel suppliers to increase rooms to be allocated to us on the guaranteed allotment basis. We have guaranteed allotment arrangements with over 500 hotels in China as of October 31, 2003, and will try to increase the number of rooms allotted to us from these hotels. In addition, we intend to pursue guaranteed allotment arrangements with our hotel suppliers that currently do not have such arrangements with us.

Expand Air-ticketing and Other Travel Product Offerings. Our air-ticketing business contributed less than 11% of our revenues in 2002 and the nine months ended September 30, 2003, but has demonstrated substantial growth potential. We intend to establish airline ticket issuance and delivery infrastructure in more cities throughout China. We also intend to continue to expand our air-ticketing business by selling more tickets for international flights, as the commissions per ticket for international flights are generally higher than that for domestic flights. To further diversify our revenue sources and in response to the increasing sophistication of Chinese travelers’ tastes, we intend to further promote the packaged-tour products that offer our customers the flexibility to choose desired flight and hotel combinations. We believe that our packaged-tour products will attract increasing interest among our existing users as well as new customers.

Enhance Transaction and Service Platform. We intend to enhance the features of our transaction and service platform to keep up with the expected rapid increase in our transaction volume while maintaining the high quality of our customer service. With respect to our customer service center, we intend to continue to invest in training our customer service representatives and upgrading our information technology systems underlying the customer service center to ensure consistently high-quality customer service. With respect to our websites, we plan to continually update new software features and editorial content and improve the accessibility of our websites through various Internet access channels such as wireless devices.

We believe the Internet as an information distribution and transaction platform presents further cost efficiencies and scalability opportunities. To exploit the additional cost savings and scalability benefits, we intend to promote the migration of customers to our websites. We have set up various promotion programs such as offering our customers up to twice the reward points on transactions effected online as compared to our customer service center.

In addition, we plan to continue to enhance our customer database management tools to identify our customers’ travel preferences and transaction patterns in order to offer them more focused services. We also intend to further promote our electronic confirmation system with our existing hotel suppliers. Currently, more than 160 hotels are using our electronic confirmation system to interface with us, and we plan to promote the electronic confirmation system with our other hotel suppliers. We believe that this system will boost our transaction efficiency significantly.

Pursue Selective Strategic Acquisitions and Expand into Hong Kong, Macau and Taiwan. We have become a leading consolidator of hotel accommodations and airline tickets in China in part through the acquisition of the largest offline hotel reservation center in China, Beijing Modern Express, in October 2000, and the air-ticketing business of Beijing Hai’an Air-ticketing Agency in February 2002. We have successfully integrated these acquired businesses into our business operations. We intend to explore additional acquisitions that would allow us to expand the reach and scope of our travel products and services as well as our customer base in the domestic markets in China.

We also aim to enter Hong Kong, Macau and Taiwan. The closer economic ties between China and other parts of Greater China, together with the recent liberalization of restrictions formerly imposed on mainland Chinese traveling to Hong Kong, are expected to increase the cross-border traffic between China and Hong Kong significantly. Given the similarities in language, culture and consumption behavior between residents of mainland China and Hong Kong, Macau and Taiwan, we foresee substantial growth opportunities in entering these markets, which can be executed at a relatively low cost and with limited risk.

Expand into the Merchant Business. Currently, we act as agent in substantially all of our transactions, passing our customers’ reservations to travel suppliers without assuming any risks for customers’ cancellations or no-shows. While we intend to continue to use the agency model as our primary business model, we plan to gradually establish a merchant business relationship with our most popular travel service suppliers beginning in the second or third quarter of 2004. In the merchant business relationship, we would buy hotel rooms and/or airline tickets in advance before selling them to our customers and thereby bear the inventory risk. However, if our hotel room and airline ticket inventory were sold successfully, we would expect to realize substantially higher profits per room or airline ticket than we do under our current agency model. We believe that our growing customer base constitutes a solid foundation for our merchant business and would help to minimize any potential inventory risk.

Products and Services

We began offering hotel reservation and air-ticketing services in October 1999. For the nine months ended September 30, 2003, we derived 85.8% of our revenues from the hotel reservation business and 10.5% of our revenues from the air-ticketing business. In addition, we offer other travel-related products and services including packaged tours that are either bundled by us and include transportation and hotel, or by third party travel agencies and include transportation, hotel and, in most cases, a guided tour.

Hotel Reservations. Our hotel booking volume has increased substantially since our inception. The following table shows the total room nights we sold for the periods indicated.

For Quarters Ended

September 30,

December 31,

March 31,

June 30,

September 30,

December 31,

March 31,

June 30,

September 30,

2001

2002

2003

(in thousands)

Room Nights

234.3

262.1

273.8

374.4

438.8

467.7

486.0

280.5*

747.8


*	Decrease primarily due to the SARS outbreak from March 2003 through June 2003.

As of October 31, 2003, we had room supplier relationships with over 1,700 hotels in China and over 450 hotels abroad, which cover a broad range of hotels in terms of price and geographical location. The majority of our hotel suppliers fall into the three-, four- and five-star categories. Revenues from our bookings for three-, four- and five-star hotels comprised approximately 95% of our revenues from our hotel reservation

business for the nine months ended September 30, 2003. The average room rate booked through us was approximately RMB488 (US$59) per night in October 2003. The following table shows the number of our hotel suppliers in each of the major cities indicated as of October 31, 2003:

Shanghai

250

Beijing

243

Hangzhou

Guangzhou

Shenzhen

Hong Kong

Nanjing

Wuhan

We act as agent in substantially all of our hotel-related transactions. Our customers receive confirmed bookings and generally pay the hotels directly upon completion of their stays, and in general, we pay no penalty to the hotels if our customers do not check in. For some of our hotel suppliers, we earn pre-negotiated fixed commissions on hotel rooms we sell. For other hotels, we have commission arrangements that we refer to as the “ratchet system,” whereby our commission rate per room night increases as the volume of room nights we sell for such hotel during such month increases.

We contract with hotels for rooms under two agency models: the “guaranteed allotment” model and the “on-request” model. Under either agency model, we enter into agreements with our hotel suppliers containing most if not all of the following provisions:


	•	Pricing. The hotel is required to offer us room prices that are lower than its published prices. If the hotel has promotional sales, it is required to notify us in advance so we can lower our prices proportionately.

	•	Room Supplies. The hotel is required to notify us in advance if it anticipates a shortage of rooms.

	•	Customer Accommodation. If the reserved room is not available when our customer checks in to the hotel due to reasons caused by the hotel, such as over-booking, the hotel is required to upgrade the customer free-of-charge or arrange for accommodation in another hotel with the same or higher rating and price.

	•	Extension of Stay. If our customer requests an extension of stay, the hotel is required to notify us immediately, and we book the extended stay and earn the resulting commissions.

	•	Confirmation of Customer’s Stay. We confirm a customer’s actual length of stay by contacting the hotel to verify the customer’s check-in and check-out dates. With the hotels that have implemented our electronic confirmation system, we receive confirmation through such system.

	•	Commission Payments. The hotel will pay us commissions each month based on the number of room nights we sell.

In addition to the agreements that we enter into with all of our hotel suppliers, we enter into a supplemental agreement with each of the hotel suppliers with which we have a guaranteed allotment arrangement. Pursuant to this agreement, a hotel gives us a specified number of guaranteed available rooms every day, allowing us to provide instant confirmations on such rooms to our customers before notifying the hotel. The hotel is required to notify us in advance if it will not be able to make the guaranteed rooms available to our customers due to reasons beyond its control.

We have contracted with over 500 hotels in China for guaranteed room allotments, allowing us to sell rooms to our customers even during peak seasons and provide instant confirmation. Rooms booked in hotels with which we have a guaranteed allotment arrangement currently account for approximately 50% of our total hotel room transaction volume. With the remaining hotel suppliers, we book rooms on an “on-request” basis, meaning our ability to secure hotel rooms for our customers is subject to room availability at the time of booking.

Our typical hotel reservation transaction involves the following major steps:


	•	Initiating an Inquiry. Our customer either conducts a search on our website, or calls our customer service center to learn more about hotels at a destination. Upon our customer’s inquiry,


		our customer service representative are trained, and our website is programmed, to recommend hotels to the customer.

	•	Making a Reservation. At this stage, we reserve a hotel room for the customer based on the customer’s choice given to us either through the telephone or our website.

	•	Confirmation. For hotels with which we have a guaranteed allotment arrangement, we give instant confirmation, and we notify the hotel afterwards. For hotels with which we have an on-request arrangement, we pass our customer’s reservation request to the hotel. Once we receive confirmation from the hotel, our customer service representative will contact the customer to confirm the reservation.

	•	Following Up. We follow up with the hotel regarding the customer’s length of stay and our commission, in accordance with our agreement with the hotel.

Some hotels require our customers to use their credit cards to guarantee the bookings. We have entered into arrangements with a number of financial institutions to allow our customer service center and websites to accept credit card guarantees to enable our customers to complete their reservations.

Air-ticketing. We believe that we are the only provider of air-ticketing services in China with a multi-province airline ticket sales and issuance infrastructure. We have experienced a significant growth in our air-ticketing business since early 2002. We believe that we are currently among the top three air-ticketing agencies in Beijing and Shanghai in terms of sales volume. The following chart shows the airline tickets we sold for the periods indicated.

For Quarters Ended

December 31,

March 31,

June 30,

September 30,

2002*

2003

(in thousands)

Number of airline tickets sold

79.3

111.7

74.4

183.1


*	Meaningful information concerning the number of airline tickets booked during the prior periods is not available.


**	Decrease principally due to the SARS outbreak from March 2003 through June 2003.

We sell airline tickets for all major domestic Chinese airlines, including Air China, China Eastern Airlines, China Southern Airlines and Shanghai Airlines, and many international airlines operating flights that originate from cities in China, such as Northwest Airlines, Air Canada, All Nippon Airways, Dragon Air and Lufthansa.

In every air-ticketing transaction, our customer receives a confirmed seat and pays the ticket delivery agent upon delivery of the ticket. Generally, the customer pays a penalty to the airline if he or she cancels the ticket for the flight.

The airline industry, including airline ticket pricing, is heavily regulated by CAAC. Therefore, we have no discretion in offering discounts on the airline tickets we sell. We generally earn standard commissions paid to air-ticketing service entities similar to us. In addition, we have an arrangement with some of our airline ticket suppliers, whereby our commission per ticket may increase as the volume of our ticket sales for an airline reaches a specified performance target set by the airline.

Our typical air-ticketing transaction involves the following major steps:


	•	Initiating an Inquiry. Our customer either conducts a search on our website or contacts our customer service center to learn more about flights to a destination. The customer learns either through our website or from our customer service representative whether any seats are available.


	•	Making a Reservation. At this stage, we make a confirmed booking of a seat on the customer’s chosen flight.

	•	Ticket Issuance and Delivery. In Beijing and Shanghai, we issue airline tickets through our local ticketing offices. In other cities, we issue airline tickets through local ticketing agencies with whom we have contractual relationships. We have the capability to issue airline tickets in most major cities in China.

	•	Ticket and Commission Settlement. Payment for airline tickets we sell is settled by either of the following methods:


	(1)	In Beijing or Shanghai, the customer pays us simultaneously with the delivery of the ticket. We then deduct our commission and deposit the remaining amount into the billing and settlement plan clearinghouse system, or the BSP system. The airline deducts the fare owed to it from our accounts within the BSP system on a regular basis.

	(2)	In other cities, where we contract with local agents for ticket fulfillment services, the local agents collect their commissions from airlines, and we, in turn, collect our commissions from them on a regular basis.

A customer has the option of picking up a ticket at the ticketing office or requesting a personal delivery. The expected adoption of electronic tickets in lieu of paper tickets by airlines in China may further increase our customer service efficiency and reduce our operating expenses.

Other Products and Services. We also offer the following products and services:


	•	packaged tours;

	•	advertising sales; and

	•	VIP membership cards.

We bundle transportation and hotels in our packaged tours. We sell packaged tours bundled by third-party travel agencies that also include, in most cases, a guided tour. We offer travel-related businesses and other third parties the opportunity to advertise on our websites and in our introductory brochures. Although we sell our VIP membership cards. Our regular customers can get free VIP membership cards once they accumulate enough points from the travel products they purchase through us. Our VIP membership cards allow the cardholders to receive discounts from many restaurants, clubs and bars in major cities in China and enjoy certain priority in obtaining our services.

These products and services accounted for less than 4.0% of our total revenue for the nine months ended September 30, 2003. We view sales of our VIP membership cards as primarily brand-promoting rather than revenue-generating.

Transaction and Service Platform

Our customers can reach us for their travel-related needs through either our toll-free customer service center or our bilingual websites located at www.ctrip.com and www.gotochina.com. For the nine months ended September 30, 2003, transactions executed through our customer service center and website account for approximately 70.0% and 30.0%, respectively, of our total transactions. We believe that the ratio of online transactions to our total transactions will increase as the Internet penetration rate in China grows, and more customers become accustomed to using the Internet as an effective medium for commerce.

Customer Service Center. Our centralized toll-free customer service center is located in Shanghai, China and is operated 24 hours a day and seven days a week. Customers can call our nationwide toll free number to consult with our customer service representatives, receive comprehensive, real-time hotel and flight information and make travel bookings.

Due to the low-cost nature of operating call centers in China, we are able to realize substantial gross profits. The average compensation of our customer service representatives was RMB2,791 (US$337) per

month in October 2003, consisting of a base salary and fringe benefits of approximately RMB1,551 (US$187) plus commissions based on the number of transactions completed during the month. In October 2003, each customer service representative received approximately 2,425 calls on average. Accordingly, the average labor cost per call was approximately RMB1.15 (US$0.14) in October 2003.

Our customer service center has 30 telephone lines, each of which is connected to eight extensions. As a result, our customer service center has the capacity to receive 240 incoming calls at once. At our technically advanced facility, we have implemented comprehensive performance measures to monitor our calls to ensure that our customers will receive quality service. We are able to take substantially all of the incoming calls with limited number of aborted calls due to unacceptably long waiting time. We have sufficient capacity to meet further increases in call volume without the need to undertake system redesign to our existing systems. Nevertheless, if we exceed this capacity, we believe we can add, within a reasonable time and at a reasonable cost, additional phone lines and computer systems to handle increasing call volumes.

We currently employ over 500 customer service representatives, all of whom participated in a formal training program before commencing work. These representatives efficiently access our information systems on behalf of customers to review a comprehensive list of the hotels and prices in individual markets, the flights to specified destinations and the related price information, while simultaneously advising our customers and making reservations for them. Unlike some companies in the U.S. that outsource their customer service to third-party call centers, our customer service representatives are in-house travel specialists. We continually review staffing needs and train representatives to handle increased call volumes to ensure the long-term sustainability of our business.

Internet Websites. We have a Chinese-language website located at www.ctrip.com and an English-language website located at www.gotochina.com. Our proprietary booking software is integrated with our websites, allowing a customer to complete a booking within minutes.

Through our user-friendly Chinese language website, our customers can:


	•	quickly review pricing and availability of hotels and flights;

	•	book hotel accommodations and airline tickets; and

	•	search and book our packaged tours.

In addition, our customers can use our editorial content for researching destinations and travel tips. Some examples of the content on www.ctrip.com include:


	•	Destination Guide. We feature extensive editorial content covering over 100 popular destinations in China and over 25 popular destinations abroad, and provide destination-related information such as local attractions, transportation, dining, lodging, entertainment, shopping and climate.

	•	Customer-Generated Content. We publish articles, travelogues and pictures by our customers about specific destinations.

	•	Travel News. We provide regularly updated information on fare sales, changing travel conditions and weather advisories.

	•	Links to Other Websites. We offer our customers a selection of links to useful travel-related and websites.

	•	Other Useful Information. Other travel-related information we provide includes train schedule, currency converter, travel tips and health tips.

We have also created an online travel community on www.ctrip.com. Some features of our online community include:


	•	Chat Rooms. Our website visitors can communicate directly with one another in our online chat rooms.


	•	Bulletin Boards. Travelers looking for travel companions and advice from fellow travelers can post their questions and answers on bulletin boards.

	•	Travelers’ Tips. Our website also contains travelers’ feedback on major domestic and international destinations.

Our English-language website, www.gotochina.com, features editorial content similar to www.ctrip.com.

Marketing and Brand Awareness

Through on-site promotions, strategic alliances, online marketing, advertising, media promotions, telemarketing and our customer reward program, we have created a strong Ctrip brand that is commonly associated in China with value travel products and services and superior customer service. We will continue to use our focused marketing strategy to further enhance our Ctrip brand and acquire new customers.

On-Site Promotions. We have over 300 on-site promotion staff located in about 30 major cities in China. All of our on-site promotions staff have participated in a formal training program to learn how to market our products and services and promote our brand in an appropriate and effective way. Our staff distribute membership cards and introductory brochures at various locations including airports and train and bus stations. To date, our on-site promotions have proven to be an effective marketing channel for us.

Cross-Marketing. We have entered into cross-marketing relationships with major Chinese domestic airlines including Air China, China Southern Airlines, China Eastern Airlines, Shanghai Airlines, Hainan Airlines, Shenzhen Airlines and Shandong Airlines, wireless service providers including China Mobile and China Unicom, and banks including Bank of China, China Merchant Bank, Hang Seng Bank and Bank of Communications.

Our airline partners recommend our products and services to their mileage program members, and allow their members to accrue miles by staying at hotels booked through us. Our wireless service provider partners direct their subscribers requesting travel information to our customer service center through automatic call forwarding, or to our websites through an Internet link on their websites. In addition, our bank partners recommend our products and services to their debit or credit card holders, and we allow their debit or credit card holders to use their cards to settle their payments for travel products purchased from us.

Online Marketing. Our Chinese language website, www.ctrip.com, is among the most accessed and used online travel website in China. We pay many of the leading Internet search engines and portals in China to prominently feature our websites.

Advertising. We advertise in in-flight videos and magazines of several domestic airlines in China. Based on our experience, such advertising is one of the most effective advertising methods for increasing brand awareness and attracting new customers.

Media Promotion. We cultivate relationships with a variety of media outlets, including newspapers, magazines and television. Our company and our services have been featured by such media outlets as CCTV, the Chinese Entrepreneurs and the China Travel Journal.

Telemarketing. We have over 40 in-house telemarketing staff who call on prospective customers to introduce our products and services, and our infrequent customers to update them on our developments and encourage them to use our services more often.

Customer Reward Program. To secure our customers’ loyalty and further promote our Ctrip brand, we provide our customers with a customer reward program. This program allows our customers to accumulate membership points calculated according to the services purchased by the customers. Our customers may then redeem these points for travel awards and other gifts.

Supplier Relationship Management

We cultivate and maintain strong relationships with our travel suppliers. We have over 70 employees dedicated to enhancing our existing travel supply arrangements and developing relationships with prospective travel suppliers. We prominently feature some of our hotel suppliers with which we have favorable arrangements on our Chinese language websites as “specially recommended hotels.” Furthermore, we have developed an electronic confirmation system that enables participating hotel suppliers to receive our customer’s reservation information instantly and confirm such reservation through our online interface with the hotel supplier. We believe that the electronic confirmation system is a cost-effective and convenient way for hotels to interface with us, and we intend to promote the system with more hotel suppliers.

Since our inception, we have not had any material disputes with our travel suppliers with respect to the amount of commissions to which we were entitled. We generally renew supply agreements with almost all of our travel suppliers once the initial term of such agreements expires.

Technology and Infrastructure

We believe that the quality of our technology differentiates us from our competitors in China. Our goal has been to build a reliable, scalable, updated and secure infrastructure to fully support our customer service center and website operations.

Since inception, we have supported substantial growth in our offline and online traffic and transactions with our present architecture. Our proprietary booking software is integrated with our websites and customer service center operations. Our hardware platform for the Internet consists of Hewlett-Packard and Dell servers. We have contracted with Avaya Inc., Hewlett-Packard Company and Dell Inc. for warranty services for our hardware platform. We maintain our database on HP DL740 G2, HP LXR8500, HP LH6000 and Dell PowerEdge 6500 and conduct daily backup functions for off-site storage. We access the Internet backbone via a 100 megabit ethernet line. Our customer service center operations are managed by an Avaya G3Si switch. We maintain all of our servers at our premises in Shanghai. As of October 31, 2003, we employed 27 technical support staff to maintain our current technology infrastructure and develop new software features to further enhance the functionality of our transaction and service platform.

Competition

We compete primarily with other consolidators of hotel accommodations and flight reservation services, such as www.elong.com. We also compete with traditional travel agencies. We believe that the hotel room booking volume of our main competitor, www.elong.com, is significantly lower than ours. However, as the travel business in China continues to grow, we may face competition from new players in the hotel consolidation market in China and foreign travel consolidators that may enter the China market, such as expedia.com and hotels.com.

We believe that among air-ticketing intermediaries in China, we have a unique multi-province airline ticket sales and fulfillment infrastructure. While we have local competitors in various markets, so far we have no national competitor in our air-ticketing business. In the markets where we face local competition, our competitors generally conduct ticketing transactions in person, and not over the Internet or through customer service centers. Many local air-ticketing agencies are primarily involved in the wholesale business that sell airline tickets to businesses rather than individual travelers, who are our targeted customers. However, as the airline ticket distribution business continues to grow in China, we believe that the companies already involved in the travel services industry may increase their efforts to develop their services that compete with our air-ticketing business.

Intellectual Property

Our intellectual property rights include trademarks and domain names associated with the name “Ctrip” and copyright and other rights associated with our websites, technology platform, booking software and other aspects of our business. We regard our intellectual property as a factor contributing to our success,

although we are not dependent on any patents, intellectual property related contracts or licenses other than some commercial software licenses available to the general public. We rely on trade mark and copyright law, trade secret protection, noncompetition and confidentiality agreements with our employees to protect our intellectual property rights. We require our employees to enter into agreements to keep confidential all information relating to our customers, methods, business and trade secrets during and after their employment with us. Our employees are required to acknowledge and recognize that all inventions, trade secrets, works of authorship, developments and other processes made by them during their employment are our property.

We have registered our domain names www.ctrip.com and www.gotochina.com with www.register.com and www.opensrs.net, respectively, and the domain name www.ctrip.com.cn with China Internet Network Information Center, a domain name registration service in China, and have full legal rights over these domain names. We conduct our business under the Ctrip brand name and logo. We have registered the trademarks “Ctrip” and “ (CHINESE CHARACTER) ” with the Trade Mark Office of the People’s Republic of China State General Administration for Industry and Commerce. We have also registered the trademark “ (CHINESE CHARACTER) ” with the Registrar of Trade Marks in Hong Kong.

Employees

As of October 31, 2003, we had 1,420 employees, including 124 in management and administration, 554 in our customer service center, 354 in sales and marketing, and 388 in product development including supplier management personnel and technical support personnel. None of our employees is represented by a labor union. We consider our relations with our employees to be good.

Facilities

Our customer service center, principal sales, marketing and development facilities and administrative offices are located on premises comprising approximately 3,737 square meters in an industry park in Shanghai, China. We own 2,514 square meters of our premises and lease the remaining area of our premises from a company controlled by the spouse of our Chief Executive Officer, James Jianzhang Liang. We have branch offices in Hong Kong, Beijing, Guangzhou and Shenzhen. We also maintain a network of sales offices in about 30 cities in China. We believe that we will be able to obtain adequate facilities, principally through the leasing of appropriate properties, to accommodate our future expansion plans.

Legal Proceedings

We are not a party to any litigation and are not aware of any pending or threatened litigation.

CHINESE GOVERNMENT REGULATIONS

Current Chinese laws and regulations impose substantial restrictions on foreign ownership of the air-ticketing, travel agency, advertising and Internet content provision businesses in China. As a result, we conduct these businesses in China through contractual arrangements with our affiliated Chinese entities as well as certain independent air-ticketing agencies and travel agencies. Our director, Qi Ji, and our officers, Min Fan and Alex Nanyan Zheng, all of whom are Chinese citizens, own all or substantially of the equity in our affiliated entities.

In the opinion of our Chinese counsel, Commerce & Finance Law Offices, the ownership structures, businesses and operations of our subsidiaries and affiliated entities in China comply with all existing Chinese laws, rules and regulations. In addition, no consent, approval or license other than those already obtained is required under the existing Chinese laws, rules and regulations for such ownership structures, businesses and operations or this offering.

Restrictions on Foreign Ownership

Air-ticketing. The principal regulation governing foreign ownership of air-ticketing businesses in China is the Foreign Investment Industrial Guidance Catalogue (2002). Under this regulation, a foreign investor cannot own more than 50% of an air-ticketing agency in China.

Travel Agency. The principal regulation governing foreign ownership of travel agencies in China is the Establishment of Foreign-controlled and Wholly Foreign-owned Travel Agencies Tentative Provisions (2003). Recently, qualified foreign investors have been permitted to establish or own a travel agency in Beijing, Shanghai, Guangzhou, Shenzhen or Xian, upon the approval of the Chinese government, subject to considerable restrictions as to its scope of business. For example, foreign travel agencies cannot arrange for the travel of persons from mainland China to Hong Kong, Macau, Taiwan or any other country. In addition, foreign travel agencies cannot establish branches.

Advertising. The principal regulation governing foreign ownership of advertising agencies in China is the Foreign Investment Industrial Guidance Catalogue (2002). Under these regulations, foreign investors cannot own more than 49% of an advertising agency in China.

Internet Content Providers. The principal regulations governing foreign ownership of the Internet content provision business in China include:


	•	Administrative Rules for Foreign Investments in Telecommunications Enterprises (2001); and

	•	Foreign Investment Industrial Guidance Catalogue (2002).

Under these regulations, a foreign entity is prohibited from owning more than 50.0% of a Chinese entity that provides value-added telecommunications services, which includes Internet content provider services.

General Regulation of Businesses

Air-ticketing. The air-ticketing business is subject to the supervision of CAAC and its regional branches. The principal regulation governing air-ticketing in China is the Administration on Civil Aviation Transporting Marketing Agency Business Regulations (1993).

Under these regulations, an air-ticketing agency must obtain a permit from CAAC or its regional branch in every city in which the agency proposes to conduct the air-ticketing business. There are two types of air-ticketing permits in China: permits for selling tickets for international flights and flights to Hong Kong, Macau and Taiwan, and permits for selling tickets for domestic flights in China.

Travel Agency. The travel industry is subject to the supervision of the China National Tourism Administration and local tourism administrations. The principal regulations governing travel agencies in China include:


	•	Administration of Travel Agencies Regulations (1996), as amended; and

	•	Administration of Travel Agencies Regulations Implementing Rules (2001).

Under these regulations, a travel agency must obtain a license from the China National Tourism Administration in order to conduct the cross-border travel business, and a license from the provincial-level tourism administration in order to conduct the domestic travel agency business.

Advertising. The State General Administration of Industry and Commerce is responsible for regulating advertising activities in China. The principal regulations governing advertising (including online advertising) in China include:


	•	Advertising Law (1994); and

	•	Administration of Advertising Regulations (1987).

Under these regulations, any entity conducting advertising activities must obtain an advertising permit from the local Administration of Industry and Commerce.

Internet Content Provision Service and Online Commerce. Our provision of travel-related content on our websites is subject to Chinese laws and regulations relating to the telecommunications industry and Internet, and regulated by various government authorities, including the Ministry of Information Industry and the State General Administration of Industry and Commerce. The principal regulations governing the telecommunications industry and Internet include:


	•	Telecommunications Regulations (2000);

	•	The Administrative Measures for Telecommunications Business Operating Licenses (2001); and

	•	The Internet Information Services Administrative Measures (2000).

Under these regulations, Internet content provider services are classified as value-added telecommunications businesses, and a commercial operator of such services must obtain an Internet content provision license from the appropriate telecommunications authorities in order to carry on any commercial Internet content provision operations in China.

With respect to online commerce, there are no specific Chinese laws at the national level governing online commerce or defining online commerce activities, and no government authority has been designated to regulate online commerce. There are existing regulations governing retail business that require companies to obtain licenses in order to engage in the business. However, it is unclear whether these existing regulations will be applied to online commerce.

Regulation of Foreign Currency Exchange and Dividend Distribution

Foreign Currency Exchange. The principal regulation governing foreign currency exchange in China is the Foreign Currency Administration Rules (1996), as amended. Under the Rules, RMB is freely convertible for trade and service-related foreign exchange transactions, but not for direct investment, loan or investment in securities outside China unless the prior approval of the State Administration for Foreign Exchange of the People’s Republic of China is obtained.

Pursuant to the Foreign Currency Administration Rules, foreign investment enterprises in China may purchase foreign exchange without the approval of the State Administration for Foreign Exchange of the People’s Republic of China for trade and service-related foreign exchange transactions by providing commercial documents evidencing these transactions. They may also retain foreign exchange (subject to a cap approved by the State Administration for Foreign Exchange of the People’s Republic of China) to satisfy

foreign exchange liabilities or to pay dividends. In addition, if and when they acquire companies in China, such acquired companies will also become foreign investment enterprises. However, the relevant Chinese government authorities may limit or eliminate the ability of foreign investment enterprises to purchase and retain foreign currencies in the future. In addition, foreign exchange transactions for direct investment, loan and investment in securities outside China are still subject to limitations and require approvals from the State Administration for Foreign Exchange of the People’s Republic of China.

Dividend Distribution. The principal regulations governing distribution of dividends of foreign holding companies include:


	•	The Foreign Investment Enterprise Law (1986), as amended; and

	•	Administrative Rules under the Foreign Investment Enterprise Law (2001).

Under these regulations, foreign investment enterprises in China may pay dividends only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. In addition, foreign investment enterprises in China are required to set aside at least 10% of their respective accumulated profits each year, if any, to fund certain reserve funds. These reserves are not distributable as cash dividends.

MANAGEMENT

Directors and Executive Officers

The following table sets forth information regarding our directors and executive officers as of November 24, 2003.


Directors and Executive Officers	Age		Position/Title

James Jianzhang Liang		33	Co-founder; Chairman of the Board; Chief Executive Officer
Neil Nanpeng Shen		35	Co-founder; President; Chief Financial Officer; Director
Gabriel Li(1)(2)		35	Deputy Chairman of the Board
JP Gan(1)(3)		31	Director
Suyang Zhang(2)(5)		44	Director
Yufei Hu(2)(4)		33	Director
Junichi Goto(1)(6)		49	Director
Qi Ji		37	Co-founder; Director
Robert Stein(1)(2)		42	Director
Min Fan		38	Co-founder; Executive Vice President
Victor Shengli Wang		48	Vice President
Alex Nanyan Zheng		34	Vice President
Han Ding		35	Vice President
Jianmin Zhu		34	Vice President


(1)	Member of Audit Committee.
(2)	Member of Compensation Committee.
(3)	Appointed by Carlyle Asia Venture Partners I, L.P.
(4)	Appointed by S.I. Technology Venture Capital Limited.
(5)	Appointed by IDG Technology Venture Investment, Inc. and IDG Technology Venture Investments, L.P.
(6)	Appointed by China Enterprise Investments No. 11 Limited.

James Jianzhang Liang is one of the co-founders of our company. Mr. Liang has served as Chief Executive Officer since 2000 and a member of our board of directors since our inception. He has been Chairman of our board since August 2003. Prior to founding Ctrip, Mr. Liang held a number of technical and managerial positions with Oracle Corporation from 1991 to 1999 in the U.S. and China, including the head of the ERP consulting division of Oracle China from 1997 to 1999. Mr. Liang currently serves on the board of Home Inns Beijing. Mr. Liang received his Master’s and Bachelor’s degrees from Georgia Institute of Technology. He also attended an undergraduate program at Fudan University.

Neil Nanpeng Shen is one of the co-founders of our company. Mr. Shen has served as Chief Financial Officer since 2000 and executive director since our inception. He became President of our company in August 2003. Prior to founding Ctrip, Mr. Shen had worked for more than eight years in the investment banking industry in New York and Hong Kong. He was a director at Deutsche Bank Hong Kong where he worked from 1996 to 1999. Prior to 1996, he had worked at Chemical Bank, Lehman Brothers and Citibank in various investment banking areas. Mr. Shen is currently Deputy Chairman of Home Inns. Mr. Shen received his Master’s degree from the School of Management at Yale University and his Bachelor’s degree from Shanghai Jiao Tong University.

Gabriel Li has served at different times on our board of directors since 2000. Mr. Li has been Deputy Chairman of our board since August 2003. Mr. Li is a managing director of Orchid Asia Management Co., LLC. Mr. Li was a managing director of The Carlyle Group from December 2002 to October 2003. Prior to

rejoining The Carlyle Group, he was a managing director of Robertson Stephens Private Equity Growth in San Francisco in 2002. Prior to that, Mr. Li had worked as a director at The Carlyle Group from 2000 to 2002, a partner at Orchid Asia Holdings, LLC from 1997 to 2000 and an associate at McKinsey & Co. in Hong Kong and Los Angeles from 1994 to 1997. Mr. Li graduated summa cum laude from the University of California at Berkeley and received his Masters of Science from the Massachusetts Institute of Technology and Masters of Business Administration from the Stanford Business School.

JP Gan has served as our director since 2002. Mr. Gan is a Vice President of The Carlyle Group responsible for venture investment activities in the Greater China region. Prior to joining The Carlyle Group in 2000, Mr. Gan worked at the investment banking division at Merrill Lynch, in Hong Kong from 1999 to 2000 and the then Price Waterhouse in the United States from 1994 to 1997. Mr. Gan obtained his Masters of Business Administration from the University of Chicago Graduate School of Business and his Bachelor of Business Administration from the University of Iowa. He is a Certified Public Accountant in the United States.

Suyang Zhang has served as our director since December 1999. Mr. Zhang is currently a Vice President of IDG Technology Venture Investment Inc., where he has worked since 1996, and General Manager of Shanghai Pacific Technology Venture Fund Co., Ltd., where he has worked since 1994. Mr. Zhang has led his firms’ investments in a number of high-tech projects in the areas of electronics, telecommunications and software in recent years. He previously served as a division manager of Shanghai Bell, deputy director of Shanghai Telephone Equipment Manufacturing Company, and general manager of Shanghai Vantone Industrial Co. Ltd. He currently serves on the boards of several companies, including Home Inns and Baud Data Communications Co., Ltd. Mr. Zhang holds a Bachelor of Electronics Engineering from Shanghai University, an Executive Masters of Business Administration from China European International Business School.

Yufei Hu has served as our director since 2002. Mr. Hu has been a partner at Shanghai Synergy Venture Capital Management Co., Ltd. since 1999. From 1996 to 1999, he was a manager in the investment department of S.I. Capital Ltd. Mr. Hu worked at Daqing Oilfield Administration Bureau from 1991 to 1994. Mr. Hu received his Master’s degree in Business Administration from the School of Management, Fudan University and his Bachelor’s degree from Heilongjiang University.

Junichi Goto has served as our director since 2000 and has more than 23 years of experience in direct investment and investment banking. Mr. Goto is also the Chairman and Chief Executive Officer of Go-To-Asia Investment Limited. Between June 1999 and June 2001, he served as a Director of Softbank China Venture Investments Limited, the venture investment arm of SOFTBANK CORP., and between March 2000 and April 2001, he was the President and Executive Director of Softbank Investment International (Strategic) Limited, a Hong Kong listed company. Mr. Goto also served as a director of Softech Investment Management Company Limited, the fund manager of the Hong Kong Government Applied Research Fund. Prior to joining SOFTBANK CORP., Mr. Goto had been with the Nomura Group and headed various divisions in investment banking and private equities. He holds a Bachelor’s degree in economics from the University of Tokyo.

Qi Ji is one of the co-founders of our company. He has served as our director since our inception. Mr. Ji has been the Chief Executive Officer of Home Inns since early 2002. He was the President of our Company from 1999 to early 2002. Prior to founding Ctrip, he served as Chief Executive Officer of Shanghai Sunflower High-Tech Group which he founded in 1997. He headed the East China Division of Beijing Zhonghua Yinghua Intelligence System Co., Ltd. from 1995 to 1997. He received both his Master’s and Bachelor’s degrees from Shanghai Jiao Tong University.

Robert Stein is the Chief Executive Officer and Chairman of Adelphi Capital Partners. Prior to establishing Adelphi, Mr. Stein was the Chief Executive Officer of Deutsche Bank Group Asia Pacific. He served on Deutsche Bank’s Global Institution Board from 1999 to 2000 and the Global Wealth Management Board from 2000 to 2002. Prior to joining Deutsche Bank, Mr. Stein worked for Merrill Lynch from 1985 to 1995, including as Head of Capital Markets, Asia and member of Merrill Lynch’s Global Debt and Equity Management Committee. Currently, Mr. Stein is a member of the Singapore Government’s Economic

Review Committee as Chair of the Financial Services Working Group. Until October 2003, he was a director of the Singapore Stock Exchange. Mr. Stein holds a Bachelor’s degree in Philosophy and Biochemistry from Dartmouth College and a Master’s degree in International and Development Economics from University College, Oxford University.

Min Fan is one of the co-founders of our company. He has served as our Executive Vice President since 2000. Mr. Fan has more than 13 years of experience in travel-related industries. From 1997 to 2000, he was the Chief Executive Officer of Shanghai Travel Service Company, a leading domestic travel agency in China. From 1990 to 1997, he served as the Deputy General Manager and in a number of other senior positions at Shanghai New Asia Hotel Management Company, which was one of the leading hotel management companies in China. Mr. Fan obtained his Master’s and Bachelor’s degrees from Shanghai Jiao Tong University. He also studied at the Lausanne Hotel Management School of Switzerland in 1995.

Victor Shengli Wang has served as our Vice President and the General Manager of our Beijing branch since 2000. In 1997, Mr. Wang co-founded Beijing Modern Express Co. Ltd., which we acquired in October 2000. From 1991 to 1997, Mr. Wang was the head of the General Plan Division of China Lantian Industrial Company. He holds a Bachelor’s degree from Xian Electronics Science & Technology Institute.

Alex Nanyan Zheng has served as our Vice President since 2000 and currently is also our General Manager in charge of Southern and Southwestern China operations. From 1993 to 2000, Mr. Zheng was co-founder and deputy general manager of Guangzhou Wanxun (Armitage) Computer Software Limited, a hotel management information system provider in China. Previously, Mr. Zheng worked at the computer center of Guangdong Provincial Economic and Trade Commission. He obtained his Bachelor’s degree from Zhongshan University in China.

Han Ding has served as our Vice President in charge of our air-ticketing business since March 2002. Prior to joining us, Mr. Ding was chief executive officer of Beijing Hai’an Air-ticketing Service Company, Ltd. which he founded in 1995. Previously, he was secretary and director of the Hai’an Industry Group of Companies. Mr. Ding obtained his Master’s degree in Business Administration from the Huazhong University of Science and Technology in China and his Bachelor’s degree from Anhui Institute of Finance and Trade in China.

Jianmin Zhu has served as our Vice President and Head of Business Operations since 2003. Prior to joining us, he worked with several software and system integration companies, including Compaq and RPTI International Ltd. He was a senior consultant at Compaq from 1999 to 2000 and technical director of RPTI International Ltd. from 1995 to 1998. Mr. Zhu received his Bachelor’s degree from Shanghai Jiao Tong University.

Board of Directors

Our board of directors currently consists of nine directors. Currently, our preferred shareholders have the right to appoint five non-independent directors (as indicated in the table above). The founding shareholders have the right to elect the remaining non-independent directors. Our articles of association allow for two independent directors to be appointed to our board by the holders of a majority of our outstanding ordinary shares on an as converted basis.

Committees of the Board of Directors

Audit Committee. Our audit committee reports to the board regarding the appointment of our independent public accountants, the scope and results of our annual audits, compliance with our accounting and financial policies and management’s procedures and policies relatively to the adequacy of our internal accounting controls.

Compensation Committee. Our compensation committee reviews and makes recommendations to the board regarding our compensation policies and all forms of compensation to be provided to our executive officers and directors. In addition, the compensation committee reviews bonus and stock compensation arrangements for all of our other employees.

We intend to comply with the requirements of the Sarbanes-Oxley Act of 2002 and Nasdaq’s recently proposed corporate governance rules with respect to audit committees and independent directors on or prior to the closing of this offering. We are considering amending the charters of the committees of our board of directors to comply with the Sarbanes-Oxley Act and Nasdaq requirements.

Duties of Directors

Under Cayman Islands law, our directors have a statutory duty of loyalty to act honestly in good faith with a view to our best interests. Our directors also have a duty to exercise the skill they actually possess and such care and diligence that a reasonably prudent person would exercise in comparable circumstances. In fulfilling their duty of care to us, our directors must ensure compliance with our memorandum and articles of association. A shareholder has the right to seek damages if a duty owed by our directors is breached.

Terms of Directors and Officers

All directors hold office until their successors have been duly elected and qualified. A director may only be removed by the shareholders who nominated and elected such director. Officers are elected by and serve at the discretion of the board of directors.

Prior to the closing of this offering, we intend to amend our articles of association to contain provisions that may discourage transactions involving an actual or potential change of control of our company, including dividing our board of directors into three classes, each having a term of three years, with the term of one class expiring each year. This provision would delay the replacement of a majority of our directors and would make changes to the board of directors more difficult than if such provision was not in place.

Compensation of Directors and Executive Officers

For the year ended December 31, 2002, the aggregate cash compensation to our current senior executive officers, James Jianzhang Liang, Neil Nanpeng Shen and Min Fan, was approximately US$402,262, and we did not pay any cash compensation to our non-executive directors. We did not grant any options to acquire our ordinary shares to our directors and executives officers in 2002.

We have not paid any cash compensation to our non-executive directors in 2003. For the nine months ended September 30, 2003, the aggregate cash compensation to our senior executive officers named above was approximately RMB2,350,000 (US$283,916). We granted options to acquire an aggregate of 470,000 ordinary shares to our executive officers as a group over the same period, but did not grant any options to our non-executive directors for the nine months ended September 30, 2003.

Employee’s Stock Option Plans

Our board of directors has adopted two stock option plans, namely, the 2003 Employee’s Option Plan, or the 2003 Plan, and 2000 Employee’s Stock Option Plan, or the 2000 Plan. The terms of the 2003 Plan and the 2000 Plan are substantially similar. The purpose of the Plans is to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to employees, directors and consultants and to promote the success of our business. Our board of directors believes that our company’s long term success is dependent upon our ability to attract and retain superior individuals who, by virtue of their ability and qualifications, make important contributions to our business.

2000 Plan to several of our current senior executive officers named below and Qi Ji, a former senior executive officer, and to our other employees as a group since our board of directors adopted the 2000 Plan.

Ordinary Shares

Underlying Options

Date of

Granted

Exercise Price

Date of Grant

Expiration

(US$/Share)

James Jianzhang Liang

144,000

0.7716

April 15, 2000

April 15, 2005

Neil Nanpeng Shen

144,000

0.7716

April 15, 2000

April 15, 2005

Min Fan

172,800

0.7716

April 15, 2000

April 15, 2005

Qi Ji

129,600

0.7716

April 15, 2000

April 15, 2005

Other employees as a group

945,360

0.7716

April 15, 2000 to
January 1, 2003

April 15, 2005 to
January 1, 2010

Total

1,535,760

We have reserved an aggregate of 1,187,510 of our ordinary shares for issuance under the 2003 Plan, of which 980,640 options are issued and outstanding. The following table summarizes, as of November 24, 2003, the option grants made under our 2003 Plan to several of our directors and senior executive officers named below, and to our other employees since our board of directors adopted the 2003 Plan. The value of the options granted in October and November 2003, based on the midpoint of the filing range set forth on the front cover of this prospectus, is US$427,220.

Ordinary Shares

Underlying Options

Date of

Granted

Exercise Price

Date of Grant

Expiration

(US$/Share)

James Jianzhang Liang

230,000

2.11

April 15, 2003

April 15, 2008

Neil Nanpeng Shen

120,000

2.11

April 15, 2003

April 15, 2008

Min Fan

120,000

2.11

April 15, 2003

April 15, 2008

Gabriel Li

30,000

6.00

October 27, 2003

October 27, 2008

Robert Stein

30,000

6.00

October 27, 2003

October 27, 2008

Other employees

241,660

2.11

April 15, 2003

April 15, 2008

50,000

5.00

October 3, 2003

October 3, 2008

20,000

6.00

October 27, 2003

October 27, 2008

103,980

80% of the
midpoint of the
filing range

October 30, 2003

October 30, 2008

35,000

90% of the
midpoint of the
filing range

November 14, 2003

November 14, 2008

Total

980,640

Termination of Options. Where the option agreement permits the exercise or purchase of the options granted for a certain period of time following the recipient’s termination of service with us, or the recipient’s disability or death, the options will terminate to the extent not exercised or purchased on the last day of the specified period or the last day of the original term of the options, whichever occurs first.

Administration. Our stock option plans are administered by our board of directors or a committee designated by our board of directors constituted to comply with applicable laws. In each case, our board of directors or the committee it designates will determine the provisions, terms and conditions of each option grant, including, but not limited to, the option vesting schedule, repurchase provisions, rights of first refusal,

forfeiture provisions, form of payment upon settlement of the award, payment contingencies and satisfaction of any performance criteria.

Vesting Schedule. One-third of the options granted under our stock option plans vest 12 months after a specified vesting commencement date; an additional one-third vest 24 months after the specified commencement date and the remaining one-third vest 36 months after the specified commencement date, subject to the optionee continuing to be a service provider on each of such dates.

Option Agreement. Options granted under our stock option plans are evidenced by an option agreement that contains, among other things, provisions concerning exercisability and forfeiture upon termination of employment or consulting arrangement (by reason of death, disability or otherwise), as determined by our board. In addition, the option agreement also provides that options granted under each Plan are subject to a 180-day lock-up period following the effective date of a registration statement filed by us under the Securities Act, if so requested by us or any representative of the underwriters in connection with any registration of the offering of any of our securities.

Transfer Restrictions. Incentive stock options for the ordinary shares to be issued upon exercise of and right to purchase ordinary shares may not be transferred in any manner by the optionee other than by will or the laws of succession and are exercisable during the lifetime of the optionee only by the optionee.

Option Exercise. The term of options granted under the 2000 Plan may not exceed ten years from the date of grant. The term of options granted under the 2003 Plan may not exceed five years from the date of grant. The consideration to be paid for our ordinary shares upon exercise of an option or purchase of shares underlying the option will be determined by the stock option plan administrator and may include cash, check, ordinary shares, a promissory note, consideration received by us under a cashless exercise program implemented by us in connection with our stock option plans, or any combination of the foregoing methods of payment.

Third-Party Acquisition. If a third party acquires us through the purchase of all or substantially all of our assets, a merger or other business combination, all outstanding options or share purchase rights will be assumed or equivalent options or rights substituted by the successor corporation or parent or subsidiary of successor corporation. In the event that the successor corporation refuses to assume or substitute for the options or share purchase rights, all options or share purchase rights will become fully vested and exercisable immediately prior to such transaction and all unexercised awards will terminate unless, in either case, the awards are assumed by the successor corporation or its parent.

Termination of Plans. Unless terminated earlier, the 2003 Plan will terminate automatically in 2008 and the 2000 Plan will terminate automatically in 2010. Our board of directors has the authority to amend or terminate our stock option plans subject to shareholder approval to the extent necessary to comply with applicable law. However, no such action may (i) impair the rights of any optionee unless agreed by the optionee and the stock option plan administrator, or (ii) affect the stock option plan administrator’s ability to exercise the powers granted to it under our stock option plans.

PRINCIPAL AND SELLING SHAREHOLDERS

The following table sets forth information with respect to the beneficial ownership of our ordinary shares, on a fully diluted basis assuming conversion of all of our preferred shares and taking into account the aggregate number of ordinary shares underlying our outstanding options, as of November 24, 2003, by:



	(1) each of our directors and senior executive officers;


	(2) each person known to us to own beneficially more than 5.0% of our ordinary shares; and

	(3) each other selling shareholder.



	Ordinary Shares									Shares Beneficially
	Beneficially Owned					Shares Being Sold in				Owned After This
	Prior to This Offering					This Offering				Offering

Name	Number(1)		%(2)			Number		%		Number(1)		%

Directors and Senior Executive Officers:
Neil Nanpeng Shen(3)		2,854,924		10.52	%		380,261		12.68%		2,474,663		7.60%
James Jianzhang Liang(4)		2,317,238		8.54	%		285,202		9.51%		2,032,036		6.24%
Qi Ji(5)		2,072,838		7.64	%		285,202		9.51%		1,787,036		5.49%
Victor Shengli Wang(6)		745,907		2.75	%		82,469		2.75%		663,438		2.04%
Min Fan(7)		706,057		2.60	%		60,652		2.02%		645,405		1.98%
Gabriel Li(8)		64,104		0.24	%		—		—		64,104		0.20%
Robert Stein(9)		30,000		0.11	%		—		—		30,000		0.09%
All directors and executive officers as a group of 7 persons(10)		8,791,068		32.38	%		1,093,786		36.46%		7,697,282		23.65%
Principal Shareholders:
Carlyle Offshore Partners II, Limited(11)		6,981,267		25.72	%		1,024,614		34.15%		5,956,653		18.30%
Tiger Technology Private Investment Partners, L.P.(12)		2,180,755		8.03	%		—		—		2,180,755		6.70%
IDG Technology Venture Investment, Inc.(13)		1,989,110		7.33	%		291,934		9.73%		1,697,176		5.21%
S.I. Technology Venture Capital Limited(14)		1,571,958		5.79	%		230,710		7.69%		1,341,248		4.12%
Other Selling Shareholders:
China Enterprise Investments No. 11 Limited(15)		1,312,506		4.83	%		192,631		6.42%		1,119,875		3.44%
Ecity Investment Limited(16)		875,004		3.22	%		128,421		4.28%		746,583		2.29%
Jing Dong Li(17)		128,435		0.47	%		18,850		0.63%		109,585		0.34%
Xiao Tan(18)		56,191		0.21	%		8,247		0.27%		47,944		0.15%
Ze Sheng Wang(19)		24,082		0.09	%		3,534		0.12%		20,548		0.06%
Openventure Company Limited(20)		17,452		0.06	%		2,561		0.09%		14,891		0.05%
Xi Yuan Fang(21)		16,055		0.06	%		2,356		0.08%		13,699		0.04%
Yu Sun(22)		16,055		0.06	%		2,356		0.08%		13,699		0.04%


(1)	Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and includes voting or investment power with respect to the securities.



(2)	The number of ordinary shares outstanding used in calculating the percentage for each listed person includes the ordinary shares of underlying options held by such persons. Percentage of beneficial ownership is based on 27,147,294 ordinary shares outstanding as of November 24, 2003 on a fully diluted basis, including 1,535,760 options granted under the 2000 Plan and 980,640 options granted under the 2003 Plan.


(3)	Includes 2,590,924 ordinary shares held by Mr. Shen and 264,000 ordinary shares issuable upon exercise of options held by Mr. Shen. The address for Mr. Shen is Unit 2001, The Centrium, 60 Wyndham St., Central, Hong Kong.

(4)	Includes 1,943,238 ordinary shares held by Mr. Liang and 374,000 ordinary shares issuable upon exercise of options held by Mr. Liang. The address for Mr. Liang is 3rd Floor, Block 63, No. 421 Hong Cao Road, Shanghai, PRC.

(5)	Includes 1,943,238 ordinary shares held by Mr. Ji and 129,600 ordinary shares issuable upon exercise of options held by Mr. Ji. The address for Mr. Ji is 3rd Floor, Block 63, No. 421 Hong Cao Road, Shanghai, PRC.

(6)	Includes 561,907 ordinary shares held by Mr. Wang and 184,000 ordinary shares issuable upon exercise of options held by Mr. Wang. The address for Mr. Wang is 6F-G, Block A, Dong Huan Plaza Office Building, No. 9, Dong Zhong Road, Beijing, PRC.

(7)	Includes 413,257 ordinary shares held by Mr. Fan and 292,800 ordinary shares issuable upon exercise of options held by Mr. Fan. The address for Mr. Fan is 3rd Floor, Block 63, No. 421 Hong Cao Road, Shanghai, PRC.


(8)	Includes 26,250 ordinary shares issuable upon conversion of Series A preferred shares, 7,854 ordinary shares issuable upon conversion of Series B preferred shares, and 30,000 ordinary shares issued upon exercise of options held by Mr. Li. The address for Mr. Li is Suite 5180, 555 California Street, San Francisco, CA 94104.



(9)	Includes 30,000 ordinary shares issuable upon exercise of options held by Mr. Stein. The address for Mr. Stein is Level 34 Centennial Tower, 3 Temasek Ave., Singapore 039190.



(10)	Shares owned by all of our directors and executive officers as a group include shares beneficially owned by James Jianzhang Liang, Neil Nanpeng Shen, Min Fan, Qi Ji, Gabriel Li, Robert Stein and Victor Shengli Wang. Shares beneficially owned by our directors and executive officers prior to this offering includes additional options to acquire 1,304,400 ordinary shares. Shares beneficially owned by all of our directors and executive officers after this offering includes options to acquire 758,400 ordinary shares that are exercisable within 60 days of November 24, 2003, all of which will become exercisable upon completion of this offering.



(11)	Includes 6,581,682 ordinary shares issuable upon conversion of Series B preferred shares held by Carlyle Asia Venture Partners I, L.P., or Asia Ventures, and 399,585 ordinary shares issuable upon conversion of Series B preferred shares held by CIPA Co-Investment, L.P., or CIPA. Asia Ventures and CIPA are investment partnerships. The general partner of each of Asia Ventures and CIPA is CIPA General Partner, L.P. The general partner of CIPA General Partner, L.P., is CIPA Ltd., a Cayman Islands limited company which is wholly-owned by TC Group Cayman, L.P. The general partner of TC Group Cayman, L.P. is TCG Holdings Cayman, L.P. The general partner of TCG Holdings Cayman, L.P. is Carlyle Offshore Partners II, Limited, a Cayman Islands limited company. Carlyle Offshore Partners II, Limited, has ultimate voting and dispositive control over the shares held by Asia Ventures and CIPA through its control of TCG Holdings Cayman, L.P. Carlyle Offshore Partners II, Limited is managed by a board of six directors. The directors are William E. Conway, Jr., Daniel A. D’Aniello, David M. Rubenstein, Allan M. Holt, Jerome H. Powell and Bruce E. Rosenblum, each of whom disclaims beneficial ownership of the shares held by Asia Ventures and CIPA. The address for Carlyle Asia Venture Partners I, L.P. and CIPA is Suite 2801, 28th Floor, 2 Pacific Place, 88 Queensway, Hong Kong.



(12)	Includes 2,173,122 ordinary shares issuable upon conversion of Series C preferred shares held by Tiger Technology Private Investment Partners, L.P. and 7,633 ordinary shares issuable upon conversion of


	Series C preferred shares held by Tiger Technology II, L.P. Tiger Technology PIP Performance, L.L.C., or Tiger PIP, is the sole general partner of Tiger Technology Private Investment Partners, L.P. Charles P. Coleman III, a citizen of the United States of America, is the sole managing member of Tiger PIP. Tiger Technology Performance, L.L.C., or Tiger Performance, is the sole general partner of Tiger Technology II, L.P. Charles P. Coleman III is the sole managing member of Tiger Performance. The address for Tiger Technology Private Investment Partners, L.P. and Tiger Technology II, L.P. is 101 Park Avenue, 48th Floor, New York 10178, U.S.A.


(13)	Includes (a) 984,380 ordinary shares; (b) 437,502 ordinary shares issuable upon conversion of Series A preferred shares held by IDG Technology Venture Investment, Inc.; and (c) 567,228 ordinary shares issuable upon conversion of Series B preferred shares held by IDG Technology Venture Investments, L.P. IDG Technology Venture Investment, Inc. is wholly owned by International Data Group, Inc., a Massachusetts corporation, which in turn is majority owned and controlled by Patrick J. McGovern, the chairman and founder of International Data Group, Inc. The address for IDG Technology Venture Investment, Inc. is 15th Floor, One Exeter Plaza, Boston, MA 02116, USA.



(14)	Includes 437,502 ordinary shares issuable upon conversion of Series A preferred shares and 1,134,456 ordinary shares issuable upon conversion of Series B preferred shares held by S.I. Technology Venture Capital Limited. S.I. Technology Venture Capital Limited is 100% owned by Shanghai Industrial Holdings Limited, a Hong Kong company, which in turn is 58% owned by Shanghai Industrial Investment (Holdings) Co., Ltd., or SIIC, a private limited company incorporated in Hong Kong. SIIC is controlled by the Shanghai government. The address for S.I. Technology Venture Capital Limited is P.O. Box 957, Offshore Incorporation Centre, Road Town, Tortola, British Virgin Islands.



(15)	Includes 1,312,506 ordinary shares issuable upon conversion of Series A Preferred Shares held by China Enterprise Investments No. 11 Limited. China Enterprise Investments No. 11 Limited is 100% owned by China Enterprise Fund, a Cayman Islands company also known as Global Fund Trust Company. Go-To-Asia Investment Limited, a company incorporated in Hong Kong, is the investment manager of Global Fund Trust Company. Go-To-Asia Investment Limited is directly controlled by its directors, Junichi Goto and Masaaki Miyagawa. The address for China Enterprise Investments No. 11 Limited is Unit 1902B, 60 Wyndham Street, Central, Hong Kong.



(16)	Includes 875,004 ordinary shares issuable upon conversion of Series A preferred shares. Ecity Investment Limited, a British Virgin Islands corporation, is wholly owned by Morningside CyberVentures Holdings Limited, a British Virgin Islands corporation, which is in turn wholly owned by The NTX-II Trust, an Isle of Man Trust, the trustee of which is Verrall Limited, an Isle of Man corporation. Verrall Limited controls indirectly, through The NTX-II Trust, a 100% interest in Ecity Investment Limited, and as a result has the sole power to vote and dispose of the shares of Ctrip.com International, Ltd. held by Ecity Investment Limited. Verrall Limited is controlled by its Board of Directors, consisting of HO Tuen Yee, Peter S.A. Edwards, Richard F.G. Pease and Charles S. Stewart, all of whom expressly disclaim beneficial ownership of the shares held by Ecity Investment Limited. The address for Ecity Investment Limited is 2nd Floor, Le Prince de Galles, 3-5 Avenue des Citronniers, MC 98000 Monaco.



(17)	Includes 128,435 ordinary shares. The address for Jing Dong Li is 6F-G, Block A, Dong Huan Plaza Office Building, No. 9, Dong Zhong Road, Beijing, PRC.



(18)	Includes 56,191 ordinary shares. The address for Xiao Tan is 6F-G, Block A, Dong Huan Plaza Office Building, No. 9, Dong Zhong Road, Beijing, PRC.



(19)	Includes 24,082 ordinary shares. The address for Ze Sheng Wang is 6F-G, Block A, Dong Huan Plaza Office Building, No. 9, Dong Zhong Road, Beijing, PRC.



(20)	Includes 17,452 ordinary shares issuable upon conversion of Series B preferred shares. Openventure Company Limited is 100% owned by its director, Louise Leung. The address for Openventure Company Limited is 4B, 11 Boyce Road, Hong Kong.



(21)	Includes 16,055 ordinary shares. The address for Xi Yuan Fang is 6F-G, Block A, Dong Huan Plaza Office Building, No. 9, Dong Zhong Road, Beijing, PRC.


(22)	Includes 16,055 ordinary shares. The address for Yu Sun is 6F-G, Block A, Dong Huan Plaza Office Building, No. 9, Dong Zhong Road, Beijing, PRC.

Prior to the issuance of our Series B preferred shares in November 2000, Neil Nanpeng Shen, James Jianzhang Liang, Qi Ji, IDG Technology Venture Investments, L.P., and S.I. Technology Venture Capital Limited, owned 21.93%, 16.45%, 16.45%, 12.04% and 3.70%, respectively, of the outstanding shares of our company. Their ownership interests were reduced to 11.97%, 8.98%, 8.98%, 9.19% and 7.26%, respectively, after the issuance of Series B preferred shares, as Carlyle Asia Venture Partners I, L.P. acquired an ownership interest of 32.25%. The ownership interests of Neil Nanpeng Shen, James Jianzhang Liang, Qi Ji, Carlyle Asia Venture Partners I, L.P., S.I. Technology Venture Capital Limited and IDG Technology Venture Investments, L.P. were reduced to 10.52%, 7.89%, 7.89%, 28.34%, 6.38% and 8.08%, respectively, after the issuance of our Series C preferred shares to Tiger Technology Private Investment Partners, L.P. and its affiliate, who together acquired an ownership interest of 8.85%, and partial redemption of our outstanding shares in September 2003. All of the calculations in this paragraph exclude shares underlying outstanding options.

As of the date of this prospectus, approximately 11.3%, 33.3%, 8.4% and 100% of our outstanding ordinary shares, Series A preferred shares, Series B preferred shares and Series C preferred shares, respectively, are held by one, seven, seven and two record holders in the United States, respectively.

Our shareholders are entitled to vote together as a single class on all matters submitted to shareholders vote. No shareholder has different voting rights from other shareholders.

Two of our selling shareholders, namely, Carlyle Asia Venture Partners I, L.P. and CIPA Co-Investment, L.P., have represented to us that they are affiliated with a registered broker-dealer. Based on such shareholders’ representations, we believe that at the time of the purchase of the shares to be offered by them in this offering, each such shareholder had no agreements or understandings, directly or indirectly, with any person to distribute them. Before Carlyle Asia Venture and CIPA Co-Investment purchased our Series B preferred shares in November 2000, they were not affiliated or otherwise related to us. Neither Carlyle Asia Venture nor CIPA Co-Investment is in the business of underwriting securities.

We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company.

RELATED PARTY TRANSACTIONS

Arrangements with Affiliated Chinese Entities

Current Chinese laws and regulations impose substantial restrictions on foreign ownership of the air-ticketing, travel agency, advertising and Internet content provision businesses in China. Therefore, we conduct part of our operations in our non-hotel reservation businesses through a series of agreements with our affiliated Chinese entities, which hold the licenses and approvals for conducting the air-ticketing, travel agency, advertising and Internet content provision businesses in China. We do not hold any ownership interest in our affiliated Chinese entities. Qi Ji, who is a co-founder, shareholder and director of our company, Min Fan, who is a co-founder, shareholder and executive vice president of our company, and Alex Nanyan Zheng, who is an officer, are the principal owners of most of the equity in each of our affiliated Chinese entities. Qi Ji and Min Fan own 80% and 20%, respectively, of Beijing Chenhao. Qi Ji and Min Fan own 51% and 49%, respectively, of Ctrip Commerce, which owns 90% of Shanghai Huacheng. Min Fan and Alex Nanyan Zheng own 90% and 10%, respectively, of Guangzhou Guangcheng. Min Fan owns 66% of Shanghai Cuiming.

We believe that the terms of these agreements are no less favorable than the terms that we could obtain from disinterested third parties. The terms of the agreements with the same title between the company and its respective affiliated entities are identical except for the amount of the loans to the shareholders of each entity and the amount of service fees paid by each entity. We believe that Qi Ji, Min Fan and Alex Nanyan Zheng will not receive any personal benefits from these agreements except as shareholders of Ctrip. According to our Chinese counsel, Commerce & Finance Law Offices, these agreements are valid, binding and enforceable under the current laws and regulations of China. The principal terms of these agreements are described below.

Powers of Attorney. Each of Qi Ji, Min Fan and Alex Nanyan Zheng has irrevocably appointed our President and Chief Financial Officer, Neil Nanpeng Shen, as attorney-in-fact to vote on their behalf on all matters they are entitled to vote on, including matters relating to the transfer of any or all of their respective equity interests in our affiliated Chinese entities and the appointment of the chief executive officer of our affiliated Chinese entities. The appointment of Mr. Shen as the attorney-in-fact will terminate if he is no longer employed by one of our subsidiaries in China. The term of each of the powers of attorney is ten years.

Exclusive Technical Consulting and Services Agreements. We provide our affiliated Chinese entities with technical consulting and related services and staff training and information services. We also maintain their network platforms. We are the exclusive provider of these services. The initial term of these agreements is ten years. In consideration for our services, our affiliated entities agree to pay our service fees as follows: Ctrip Commerce pays us a quarterly fee of RMB240,000 (US$28,996); Beijing Chenhao pays us a monthly fee based on the number of airline tickets sold in the month, at the rate of RMB18.0 (US$2.2) per ticket; Shanghai Huacheng pays us a monthly fee based on the number of packaged-tour products and the number of airline tickets sold in the month, at the rates of RMB60.0 (US$7.3) per tour and RMB20.0 (US$2.4) per ticket; Guangzhou Guangcheng pays us a monthly fee based on the number of airline tickets sold in the month, at the rate of RMB18.0 (US$2.2) per ticket; and Shanghai Cuiming pays us a monthly service fee based on the number of packaged-tour products sold in the month, at the rate of RMB60.0 (US$7.3) per tour. The service fees are subject to quarterly adjustment based on the actual operating results of our affiliated entities.

Share Pledge Agreements. Qi Ji, Min Fan and Alex Nanyan Zheng pledge their respective equity interests in our affiliated Chinese entities as a guarantee for the payment by our affiliated Chinese entities of technical and consulting services fees to us under the exclusive technical consulting and services agreements described above. In the event any of our affiliated entity breaches any of its obligations under the service agreement with us, we are entitled to sell the equity interests held by Qi Ji, Min Fan and/or Alex Nanyan Zheng, as the case may be, and retain the proceeds from such sale or require any of them to transfer his equity interest without consideration to the Chinese citizen(s) designated by us. We will endeavor to enforce our rights in full under the share pledge agreement in the event that any affiliated entity breaches its obligations under the exclusive technical consulting and services agreement with us.

Trademark License Agreements. We grant our affiliated Chinese entities licenses to use our registered trademarks on their websites for a license fee of RMB3,000 (US$362) per year. The terms of these agreements are ten years and may be extended by us for one year.

Software License Agreements. We grant our affiliated Chinese entities the right to use our software for a royalty fee of RMB3,000 (US$362) per year. The terms of these agreements are one year and may be extended by us for one year.

Loan Agreements. Due to government restrictions on foreign ownership of air-ticketing, travel agencies, Internet content provision and advertising businesses in China, we have made loans to Qi Ji, Min Fan and Alex Nanyan Zheng, with the sole and exclusive purpose of providing funds necessary for the capitalization or acquisition of our affiliated entities. In the event that the Chinese government lifts its substantial restrictions on foreign ownership of the air-ticketing, travel agency, advertising or Internet content provision business in China, as applicable, we will exercise our exclusive option to purchase all of the outstanding equity interests of our affiliated Chinese entities, as described in the following paragraph, and the loans will be cancelled in connection with such purchase. However, it is uncertain when, if at all, the Chinese government will lift any or all of these restrictions. The following table sets forth the amount of each loan, the date the loan agreement was entered into, the principal, interest, maturity date and outstanding balance of the loan, the borrower and the affiliated Chinese entity.

Affiliated

Date of Loan Agreement

Borrower

Entity

Principal

Interest

Maturity Date

Outstanding Balance

(in thousands

of RMB)

of US$)

of RMB)

of US$)

September 10, 2003

Min Fan

Beijing
Chenhao

387.4

46.8

None

September 10, 2013

387.4

46.8

September 10, 2003

Qi Ji

Beijing
Chenhao

1,549.5

187.2

None

September 10, 2013

1,549.5

187.2

September 10, 2003

Min Fan

Ctrip
Commerce

980.0

118.4

None

September 10, 2013

980.0

118.4

September 10, 2003

Qi Ji

Ctrip
Commerce

1,020.0

123.2

None

September 10, 2013

1,020.0

123.2

September 10, 2003

Alex Nanyan Zheng

Guangzhou
Guangcheng

50.0

6.0

None

September 10, 2013

50.0

6.0

September 10, 2003

Min Fan

Guangzhou
Guangcheng

450.0

54.4

None

September 10, 2013

450.0

54.4

October 30, 2003

Min Fan

Shanghai Cuiming

4,290.0

518.3

None

October 30, 2013

4,290.0

518.3

Exclusive Option Agreements. As consideration for our entering into the loan agreements described above, each of Qi Ji, Min Fan and Alex Nanyan Zheng has granted us an exclusive, irrevocable option to purchase all of their equity interests in our affiliated Chinese entities at any time we desire, subject to compliance with the applicable Chinese laws and regulations. If we exercise these options, we will cancel the outstanding loans we extended to Qi Ji, Min Fan and Alex Nanyan Zheng to fund our affiliated Chinese entities.

Operating Agreements. We guarantee the performance by our affiliated Chinese entities of contracts, agreements or transactions with third parties relating to the business operations of our affiliated Chinese entities. As consideration for our entering into these performance guarantees, our affiliated Chinese entities pledge their accounts receivable and all of their assets for our benefit. In addition, our affiliated Chinese entities and their shareholders agree not to enter into any transaction that would affect the assets, obligations, rights or operations of our affiliated Chinese entities without our prior written consent. They also agree to accept our guidance with respect to day-to-day operations, financial management systems and the appointment and dismissal of key employees.

All of the agreements described above were entered into in September 2003. Prior to September 2003, we had services agreements with Beijing Chenhao, Shanghai Huacheng and Ctrip Commerce, whereby we rendered consulting, technology, administrative, marketing and other services to them, and issued invoices to them on a monthly basis based on the amount of service fees determined at our sole discretion. These

service agreements have been terminated and replaced with the currently effective exclusive technical consulting and services agreements.

Stock Option Grants

We have granted options to purchase our ordinary shares under the 2000 Plan to our employees, of which 1,535,760 options are outstanding. We will not issue any additional options under the 2000 Plan to our employees. The following table summarizes, as of November 24, 2003, the option grants made under our 2000 Plan to several of our current senior executive officers named below and Qi Ji, a former executive officer, and to our other employees as a group since our board of directors adopted the 2000 Plan.

Ordinary Shares

Underlying Options

Date of

Granted

Exercise Price

Date of Grant

Expiration

(US$/Share)

James Jianzhang Liang

144,000

0.7716

April 15, 2000

April 15, 2005

Neil Nanpeng Shen

144,000

0.7716

April 15, 2000

April 15, 2005

Min Fan

172,800

0.7716

April 15, 2000

April 15, 2005

Qi Ji

129,600

0.7716

April 15, 2000

April 15, 2005

Other employees as a group

945,360

0.7716

April 15, 2000 to
January 1, 2003

April 15, 2005 to
January 1, 2010

Total

1,535,760

Ordinary Shares

Underlying Options

Date of

Granted

Exercise Price

Date of Grant

Expiration

(US$/Share)

James Jianzhang Liang

230,000

2.11

April 15, 2003

April 15, 2008

Neil Nanpeng Shen

120,000

2.11

April 15, 2003

April 15, 2008

Min Fan

120,000

2.11

April 15, 2003

April 15, 2008

Gabriel Li

30,000

6.00

October 27, 2003

October 27, 2008

Robert Stein

30,000

6.00

October 27, 2003

October 27, 2008

Other employees

241,660

2.11

April 15, 2003

April 15, 2008

50,000

5.00

October 3, 2003

October 3, 2008

20,000

6.00

October 27, 2003

October 27, 2008

103,980

80% of the midpoint of the filing range

October 30, 2003

October 30, 2008

35,000

90% of the midpoint of the filing range

November 14, 2003

November 14, 2008

Total

980,640

Private Placements

In March 2000, we sold a total of 4,320,000 shares of Series A preferred shares in a private placement at a price of US$1.0417 per share, including 921,600 shares to Orchid Asia II, L.P., 1,440,000 shares to China Enterprise Investments No. 11 Limited (formerly known as Softbank China Venture Investments No. 11 Limited), 960,000 shares to Ecity Investment Limited, 480,000 IDG Technology Venture Investment, Inc. (formerly known as PTV-China Inc.), 480,000 shares to S.I. Technology Venture Capital Limited and certain individual shareholders. The holders of Series A preferred shares are entitled to vote on an “as converted” basis together with the holders of our ordinary shares. Each Series A preferred share will automatically convert into one ordinary share upon the closing of this offering. Except for IDG Technology Venture, which was also a holder of our ordinary shares, each of the purchasers of our Series A preferred shares was an unrelated third party prior to the issuance and sale of our Series A preferred shares. The value of the Series A preferred shares was determined based on arm’s-length negotiations between us and the purchasers and approved by our board of directors. The purpose of the issuance of our Series A preferred shares was to fund our working capital.

In November 2000, we sold a total of 7,193,464 shares of Series B preferred shares in a private placement at a price of US$1.5667 per share, including 5,106,274 shares to Carlyle Asia Venture Partners I, L.P., 638,285 shares to Softbank Asia Net-Trans (No. 4) Limited, 414,885 shares to IDG Technology Venture Investments, L.P., 829,770 shares to S.I. Technology Venture Capital Limited, 12,765 shares to Openventure Company Limited, 183,826 shares to Orchid Asia II, L.P. and certain individuals. Holders of the Series B preferred shares are entitled to vote on an “as converted” basis together with holders of our ordinary shares and have the right to convert their Series B preferred shares into ordinary shares at a 1 to 1.5 conversion ratio. Each Series B preferred share will automatically convert into 1.5 ordinary shares upon the closing of this offering. Each of the purchasers of our Series B preferred shares, except for those who also held our ordinary shares and Series A preferred shares, was an unrelated third party prior to the issuance and sale of our Series B preferred shares. The value of the Series B preferred shares was determined based on arm’s-length negotiations between us and the purchasers and approved by our board of directors. The purpose of the issuance of our Series B preferred shares was to fund our working capital.

In September 2003, we sold 2,180,755 shares of Series C preferred shares in a private placement at a price of US$4.5856 per share to Tiger Technology Private Investment Partners, L.P. and Tiger Technology II, L.P. A holder of Series C preferred shares is entitled to vote on an “as converted” basis together with holders of our ordinary shares and has the right to convert shares of Series C preferred share into ordinary shares at a 1 to 1 conversion ratio. Each Series C preferred share will automatically convert into one ordinary share upon the closing of this offering. Each of the purchasers of our Series C preferred shares was an unrelated third party prior to the issuance and sale of our Series C preferred shares. The value of the Series C preferred shares was determined based on arm’s-length negotiations between us and the purchasers and approved by our board of directors.

The purposes of the issuance and sale of our Series C preferred shares were to introduce new and well-known investors to facilitate our potential future fund raising efforts and reward our existing shareholders. Immediately after the closing of the sale of our Series C preferred shares, we used the proceeds from such sale to redeem some of our outstanding shares, including 842,938, 382,482 and 636,891 shares of ordinary shares, Series A preferred shares and Series B preferred shares, respectively, at redemption prices of US$4.5282, US$4.5282 and US$6.7924 per share, respectively, after taking into consideration the legal and professional service expenses incurred in connection with the issuance of Series C preferred shares. Each of our then existing shareholders, including our affiliates Carlyle Asia Venture Partners I, L.P., IDG Technology Venture Investment, Inc., S.I. Technology Venture Capital Limited, Neil Nanpeng Shen, James Jianzhang Liang, Min Fan and Qi Ji, participated in our partial redemption of outstanding shares based on the pro rata ownership interest held by such shareholder prior to the issuance and sale of our Series C preferred shares. None of our related parties received any payment for professional services expenses incurred in connection with our issuance and sale of Series C preferred shares.

Shareholders Agreement

We and our existing shareholders entered into a shareholders agreement in September 2003. Pursuant to the shareholders agreement, our board of directors may consist of up to ten members, including two members nominated collectively by Carlyle Asia Venture Partners I, L.P., or Carlyle, and CIPA Co-Investments, L.P., three members nominated by each of the three largest holders of our Series A preferred shares, Series B preferred shares and ordinary shares excluding Carlyle and our founders, respectively, three members nominated by our founders, and two independent directors nominated by holders of a majority of our outstanding shares calculated on an as-converted basis. In addition, holders of our preferred shares are entitled to certain registration rights with respect to any public offering of our ordinary shares, as described in “Description of Share Capital — Registration Rights,” and they have waived such rights in connection with this offering. Holders of our preferred shares also have rights of first refusal to purchase their respective pro rata portion of any new securities issued by us, except in the case of our initial public offering and share issuances under our stock option plans. This right will terminate upon the closing of this offering. We and our shareholders intend to amend the shareholders agreement immediately after the consummation of this offering.

Certain Leased Property in Shanghai

We lease approximately 1,223 square meters of our premises in Shanghai from a company controlled by the spouse of our Chief Executive Officer, James Jianzhang Liang. Our lease term commenced on May 1, 2003 and will expire on February 1, 2005. The annual rent for this lease is RMB500,000 (US$60,408).

DESCRIPTION OF SHARE CAPITAL

As of the date of this prospectus, our authorized share capital consists of 49,157,064 ordinary shares, par value US$0.01 each; 3,937,518 Series A preferred shares, par value US$0.01 each; 6,556,573 Series B preferred shares, par value US$0.01 each; and 2,180,755 Series C preferred shares, par value US$0.01 each. As of the date of this prospectus, there are 8,677,760 ordinary shares issued and outstanding; 3,937,518 Series A preferred shares issued and outstanding; 6,556,573 Series B preferred shares issued and outstanding; and 2,180,755 Series C preferred shares issued and outstanding. All of our issued and outstanding Series A, Series B and Series C preferred shares will automatically be converted into our ordinary shares on a basis of one ordinary share to 1, 1.5 and 1 preference share(s), respectively, upon the closing of this offering.

Between March 2000 and September 2003, we issued and sold shares of our Series A preferred shares, Series B preferred shares and Series C preferred shares in reliance upon Section 4(2) of the Securities Act, and Regulation D and Regulation S promulgated thereunder. Immediately after our issuance and sale of Series C preferred shares, we used the proceeds from such sale to redeem some of our outstanding shares held by our existing shareholders. See “Related Party Transactions — Private Placements.”

We are a Cayman Islands company and our affairs are governed by our memorandum and articles of association and the Companies Law (2003 Revision) of the Cayman Islands, which is referred to as the Companies Law below. Upon the closing of this offering, we will adopt an amended and restated memorandum and articles of association. The following are summaries of (i) material provisions of our proposed amended and restated memorandum and articles of association that we expect will become effective upon the closing of this offering and (ii) the Companies Law, insofar as they relate to the material terms of our ordinary shares.

Ordinary Shares

General. All of our outstanding ordinary shares are fully paid and non-assessable. Certificates representing the ordinary shares are issued in registered form. Our shareholders who are nonresidents of the Cayman Islands may freely hold and vote their shares.

Dividends. The holders of our ordinary shares are entitled to such dividends as may be declared by our board of directors subject to the Companies Law.

Voting Rights. Each ordinary share is entitled to one vote on all matters upon which the ordinary shares are entitled to vote. Voting at any meeting of shareholders is by show of hands unless a poll is demanded. A poll may be demanded by the chairman of our board of directors or any other shareholder present in person or by proxy and holding at least ten percent of the shares giving a right to vote at the meeting.

A quorum required for a meeting of shareholders consists of at least two shareholders present or by proxy or, if a corporation or other non-natural person, by its duly authorized representative. Shareholders’ meetings are held annually and may be convened by our board of directors on its own initiative or upon a request to the directors by shareholders holding in the aggregate 10.0% or more of our voting share capital. Advance notice of at least seven days is required for the convening of our annual general shareholders’ meeting and other shareholders meetings.

An ordinary resolution to be passed by the shareholders requires the affirmative vote of a simple majority of the votes attaching to the ordinary shares cast in a general meeting, while a special resolution requires the affirmative vote of no less than two-thirds of the votes cast attaching to the ordinary shares. A special resolution is required for matters such as a change of name or amending the memorandum and articles of association. Holders of the ordinary shares may by ordinary resolution, among other things, make changes in the amount of our authorized share capital and consolidate and divide all or any of our share capital into shares of larger amount than our existing share capital and cancel any shares.

Liquidation. On a return of capital on winding up or otherwise (other than on conversion, redemption or purchase of shares), assets available for distribution among the holders of ordinary shares shall

be distributed among the holders of our ordinary shares on a pro rata basis. If our assets available for distribution are insufficient to repay all of the paid-up capital, the assets will be distributed so that the losses are borne by our shareholders proportionately.

Calls on Shares and Forfeiture of Shares. Our board of directors may from time to time make calls upon shareholders for any amounts unpaid on their shares in a notice served to such shareholders at least 14 days prior to the specified time and place of payment. The shares that have been called upon and remain unpaid are subject to forfeiture.

Redemption of Shares. Subject to the provisions of the Companies Law, we may issue shares on the terms that they are, or at our option or at the option of the holders are, subject to redemption on such terms and in such manner as may be determined by special resolution.

Variations of Rights of Shares. All or any of the special rights attached to any class of shares may, subject to the provisions of the Companies Law, be varied either with the consent in writing of the holders of three-fourths of the issued shares of that class or with the sanction of a special resolution passed at a general meeting of the holders of the shares of that class.

Differences in Corporate Law

The Companies Law is modeled after that of the United Kingdom but does not follow recent United Kingdom statutory enactments. In addition, the Companies Law differs from laws applicable to United States corporations and their shareholders. Set forth below is a summary of the significant differences between the provisions of the Companies Law applicable to us and the laws applicable to companies incorporated in the United States and their shareholders.

Mergers and Similar Arrangements. Cayman Islands law does not provide for mergers as that expression is understood under United States corporate law. However, there are statutory provisions that facilitate the reconstruction and amalgamation of companies, provided that the arrangement in question is approved by a majority in number of each class of shareholders and creditors with whom the arrangement is to be made, and who must in addition represent three-fourths in value of each such class of shareholders or creditors, as the case may be, that are present and voting either in person or by proxy at a meeting, or meetings convened for that purpose. The convening of the meetings and subsequently the arrangement must be sanctioned by the Grand Court of the Cayman Islands. While a dissenting shareholder would have the right to express to the court the view that the transaction should not be approved, the court can be expected to approve the arrangement if it satisfies itself that:


	•	the statutory provisions as to majority vote have been complied with;

	•	the shareholders have been fairly represented at the meeting in question;

	•	the arrangement is such as a businessman would reasonably approve; and

	•	the arrangement is not one that would more properly be sanctioned under some other provision of the Companies Law.

When a take-over offer is made and accepted by holders of 90.0% of the shares within four months, the offerer may, within a two-month period, require the holders of the remaining shares to transfer such shares on the terms of the offer. An objection may be made to the Grand Court of the Cayman Islands but is unlikely to succeed unless there is evidence of fraud, bad faith or collusion.

If the arrangement and reconstruction is thus approved, any dissenting shareholders would have no rights comparable to appraisal rights, which would otherwise ordinarily be available to dissenting shareholders of United States corporations, providing rights to receive payment in cash for the judicially determined value of the shares.

Shareholders’ Suits. We are not aware of any reported class action or derivative action having been brought in a Cayman Islands court. In principle, we will normally be the proper plaintiff and a derivative action may not be brought by a minority shareholder. However, based on English authorities, which would in

all likelihood be of persuasive authority in the Cayman Islands, exceptions to the foregoing principle apply in circumstances in which:


	•	a company is acting or proposing to act illegally or beyond the scope of its authority;

	•	the act complained of, although not beyond the scope of its authority, could be effected duly if authorized by more than a simple majority vote which has not been obtained; and

	•	those who control the company are perpetrating a “fraud on the minority.”

Indemnification

Cayman Islands law does not limit the extent to which a company’s articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences or committing a crime. Our articles of association provide for indemnification of officers and directors for losses, damages, costs and expenses incurred in their capacities as such, except through their own willful neglect or default.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and therefore is unenforceable.

Registration Rights

Under the terms of our shareholders agreements with certain of our shareholders, at any time after the closing of the first firm commitment underwritten public offering of our ordinary shares where the shares are subsequently primarily traded on the Nasdaq National Market or the New York Stock Exchange or other comparable exchange or market place approved by our board of directors, any shareholder(s) holding of record at least 50.0% of registrable shares then outstanding or any permitted assignee of record of such registrable shares may, on three occasions only, require us to effect the registration under the Securities Act of all of the registrable shares that such shareholder(s) request to be registered. Registrable shares consist of (i) ordinary shares issued or to be issued pursuant to conversion of any preferred shares, (ii) any ordinary shares issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, any preferred shares and (iii) any other ordinary shares owned or acquired by any holder of preferred shares. To effect such registration, the registrable shares requested by all holders of registrable shares to be registered must be at least 15.0% of all registrable shares then outstanding. We are not, however, obligated to effect any such registration if we have, within the six-month period preceding the date of any request, already effected a registration under the Securities Act pursuant to (a) a request to exercise another registration right, (b) a request by holders of registrable shares of registration of registrable shares they hold on Form F-3 or (c) the “piggyback” registration right as described below, other than a registration from which the registrable shares of the holders of registrable shares have been excluded (with respect to all or any portion of the registrable shares the holders of registrable shares requested be included in such registration).

Further, any time after the first anniversary of the date of the shareholders agreement, any holder or holders of a majority of all registrable shares then outstanding or any permitted assignees of record of registrable shares may require us to effect a registration on Form F-3 (or any equivalent registration in a jurisdiction outside of the United States) for public sale of all or any portion of the registrable shares held by such holder or holders. We are not, however, obligated to effect any such registration on Form F-3:


	(i) if Form F-3 is not available for such offering by the holders of registrable shares or any permitted assignees of record of registrable shares;

	(ii) if the holders of registrable shares or any permitted assignees of record of registrable shares, together with the holders of any of our other securities entitled to inclusion in such


	registration, propose to sell registrable shares and such other securities (if any) at an aggregate price to the public of less than US$5,000,000;

	(iii) if we furnish to the holders of registrable shares or any permitted assignees of record of registrable shares a certificate signed by our president or chief executive officer stating that in the good faith judgment of our board of directors, it would be materially detrimental to us and our shareholders for such Form F-3 Registration (or equivalent registration in a jurisdiction outside of the United States) to be effected at such time, in which event we have the right to defer the filing of the Form F-3 registration statement (or equivalent registration statement in a jurisdiction outside of the United States) no more than once during any 12-month period for a period of not more than 90 days after receipt of the request of the holder or holders of registrable share or any permitted assignees of record of registrable shares;

	(iv) if we have, within the six-month period preceding the date of such request, already effected a registration under the Securities Act other than a registration from which the registrable shares of holders of registrable shares or any permitted assignees of record of registrable shares have been excluded (with respect to all or any portion of the registration shares the holders of registrable shares requested to be included in such registration) pursuant to the “piggyback” registration right described below; or

	(v) in any particular jurisdiction in which we would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance.

In addition, holders of registrable shares who are parties to the shareholders agreement have “piggyback” registration rights which may require us to register all or any part of the registrable shares then held by such holders when we file any registration statement under the Securities Act other than a registration statement relating to any employee benefit plan or corporate reorganization.

The foregoing registration rights are subject to certain conditions and limitations, including:


	•	the right of the underwriters in any underwritten offering to limit the number of ordinary shares to be registered for public sale by shareholders; and

	•	our right to delay for up to 90 days during any 12-month period the filing of a registration statement if our board of directors determines that the registration would be seriously materially adverse to us and our shareholders at that time.

We are generally required to bear all of the expenses of all registrations, except underwriting discounts and commissions. Registration of any of the ordinary shares held by shareholders with registration rights would result in those shares becoming freely tradeable without restriction under the Securities Act immediately after the effectiveness of the registration. We have agreed to indemnify the holders of registration rights in connection with demand, Form F-3 and “piggyback” registrations in certain circumstances. Our obligations to register ordinary shares terminate seven years after the consummation of an initial public offering, or, with respect to any holder of registrable shares, such earlier time after the initial public offering at which such holder can sell all registrable shares held by it pursuant to Rule 144(k) of the Securities Act or holds one percent or less of the outstanding ordinary shares, and all registrable shares held by such holder can be sold in any three-month period without registration in compliance with Rule 144 of the Securities Act.

We and our shareholders intend to amend our shareholders agreement immediately after this offering, but the terms relating to the registration rights described in this prospectus are not expected to be changed in connection with such amendment.

Inspection of Books and Records

Holders of our ordinary shares will have no general right under Cayman Islands law to inspect or obtain copies of our list of shareholders or our corporate records. However, we will provide our shareholders with annual audited financial statements. See “Where You Can Find Additional Information.”

DESCRIPTION OF AMERICAN DEPOSITARY SHARES

The Bank of New York will execute and deliver the American Depositary Receipts representing Ordinary Shares of the Par Value of US$0.01 per share of Ctrip.com International, Ltd. (Incorporated under the Laws of Cayman Islands), also referred to as ADRs. Each ADR is a certificate evidencing a specific number of American Depositary Shares, also referred to as ADSs. Each ADS will represent two ordinary shares (or a right to receive two ordinary shares) deposited with the Hong Kong office of The Hongkong and Shanghai Banking Corporation Limited, as custodian. Each ADR will also represent securities, cash or other property deposited with The Bank of New York but not distributed to ADR holders. The depositary’s corporate trust office at which the ADRs will be administered is located at 101 Barclay Street, New York, New York 10286.

You may hold ADSs either directly (by having an ADR registered in your name) or indirectly through your broker or other financial institution. If you hold ADSs directly, you are an ADR holder. This description assumes you hold your ADSs directly. If you hold the ADSs indirectly, you must rely on the procedures of your broker or other financial institution to assert the rights of ADR holders described in this section. You should consult with your broker or financial institution to find out what those procedures are.

As an ADR holder, we will not treat you as one of our shareholders and you will not have shareholder rights. The depositary will be the holder of the shares underlying your ADSs. As a holder of ADRs, you will have ADR holder rights. A deposit agreement among us, the depositary and you, as an ADR holder, and the beneficial owners of ADRs set out ADR holder rights as well as the rights and obligations of the depositary. New York law governs the deposit agreement and the ADRs.

We are providing you with a summary of the deposit agreement. You should read this summary together with the deposit agreement and the ADR. You can inspect a copy of the deposit agreement at the corporate trust office of the depositary, currently located at 101 Barclay Street, New York, New York 10286, and at the principal offices of the custodian, which will act as agent of depositary, currently located at 1 Queen’s Road, Central, Hong Kong. We urge you to review the deposit agreement in its entirety as well as the form of ADR attached to the deposit agreement.

Dividends and Other Distributions

The Bank of New York has agreed to pay to you the cash dividends or other distributions it or the custodian receives on shares or other deposited securities after deducting its fees and expenses. You will receive these distributions in proportion to the number of shares your ADSs represent.


	•	*Cash.* The Bank of New York will convert any cash dividend or other cash distribution we pay on the shares into U.S. dollars, if it can do so on a reasonable basis and can transfer the U.S. dollars to the United States. If that is not possible or if any approval from any government is needed and cannot be obtained without excessively burdensome or otherwise unreasonable efforts, or there are foreign exchange controls in place that prohibit such transfer, the deposit agreement allows The Bank of New York to distribute RMB only to those ADR holders to whom it is possible to do so. It will hold RMB it cannot convert for the account of the ADR holders who have not been paid. It will not invest RMB and it will not be liable for interest.

Before making a distribution, any withholding taxes that must be paid will be deducted. See “Taxation — United States Federal Income Taxation — U.S. Holders — Taxation of Dividends and other Distributions on the Shares of ADSs”. The Bank of New York will distribute only whole U.S. dollars and cents and will round fractional cents to the nearest whole cent. If the exchange rates fluctuate during a time when The Bank of New York cannot convert RMB, you may lose some or all of the value of the distribution.


	•	*Shares.* The Bank of New York may distribute additional ADRs representing any shares we may distribute as a dividend or free distribution, if we furnish it promptly with satisfactory evidence that it is legal to do so. The Bank of New York will only distribute whole ADSs. It will sell shares which would require it to issue a fractional ADS and distribute the net proceeds in


		the same way as it does with cash. If The Bank of New York does not distribute additional ADRs, each ADS will also represent the new shares.

	•	*Rights to Purchase Additional Shares.* If we offer holders of our ordinary shares any rights to subscribe for additional shares or any other rights, The Bank of New York may make these rights available to you. We must first instruct The Bank of New York to do so and furnish it with satisfactory evidence that it is legal to do so. If we do not furnish this evidence and/or give these instructions, and The Bank of New York decides it is practical to sell the rights, The Bank of New York will sell the rights and distribute the proceeds, in the same way as it does with cash. The Bank of New York may allow rights that are not distributed or sold to lapse. In that case, you will receive no value for them.

		If The Bank of New York makes rights available to you, it will exercise the rights and purchase the shares on your behalf. The depositary will then deposit the shares and deliver the ADSs to you. It will only exercise rights if you pay it the exercise price and any other charges the rights require you to pay.

		U.S. securities laws may restrict the sale, deposit, cancellation and transfer of the ADSs issued after exercise of rights. Under the deposit agreement, The Bank of New York will not distribute rights to holders of ADSs unless the distribution and sale of rights and the securities to which these rights relate are either exempt from registration under the Securities Act of 1933, as amended, with respect to all holders of ADSs, or are registered under the provisions of the Securities Act. We can give no assurance that we can establish an exemption from registration under the Securities Act, and we are under no obligation to file a registration statement with respect to these rights or underlying securities or to endeavor to have a registration statement declared effective. In this case, The Bank of New York may issue the ADSs under a separate restricted deposit agreement which will contain the same provisions as the agreement, except for changes needed to put the restrictions in place.

	•	*Other Distributions.* The Bank of New York will send to you anything else we distribute on deposited securities by means it thinks are legal, fair and practical. If it cannot make the distribution in that way, The Bank of New York has a choice. It may decide to sell what we distributed and distribute the net proceeds in the same way as it does with cash or it may decide to hold what we distributed, in which case ADSs will also represent the newly distributed property.

The Bank of New York is not responsible if it decides that it is unlawful or impractical to make a distribution available to any ADR holders. We have no obligation to register ADSs, shares, rights or other securities under the Securities Act. We also have no obligation to take any other action to permit the distribution of ADRs, shares, rights or anything else to ADR holders. This means that you may not receive the distribution we make on our shares or any value for them if it is illegal or impractical for us to make them available to you.

Deposit, Withdrawal and Cancellation

The Bank of New York will issue ADRs if you or your broker deposit shares or evidence of rights to receive shares with the custodian. Upon payment of its fees and expenses and of any taxes or charges, such as stamp taxes or stock transfer taxes or fees, The Bank of New York will register the appropriate number of ADRs in the names you request and will deliver the ADRs at its corporate trust office to the persons you request.

You may turn in your ADRs at The Bank of New York’s office. Upon payment of its fees and expenses and of any taxes or charges, such as stamp taxes or stock transfer taxes or fees, The Bank of New York will deliver:


	(1) the deliverable portion of the underlying shares to an account designated by you; and

	(2) the deliverable portion of any other deposited securities underlying the ADR at the office of the custodian. Or, at your request, risk and expense, The Bank of New York will deliver the deliverable portion of the deposited securities at its corporate trust office.

Voting Rights

You may instruct The Bank of New York to vote the shares underlying your ADSs but only if we ask The Bank of New York to ask for your instructions. Otherwise, you will not be able to exercise your right to vote unless you withdraw the shares. However, you may not know about the meeting enough in advance to withdraw the shares.

If we ask for your instructions, The Bank of New York will notify you of the upcoming vote and arrange to deliver our voting materials to you. The materials will:


	(1) describe the matters to be voted on; and

	(2) explain how you, on a specified date, may instruct The Bank of New York to vote the shares or other deposited securities underlying your ADSs as you direct. For instructions to be valid, The Bank of New York must receive them on or before the date specified. The Bank of New York will try, in compliance with Hong Kong law and the provisions of our memorandum and articles of association, to vote or to have its agents vote the shares or other deposited securities as you instruct.

We cannot assure you that you will receive the voting materials in time to ensure that you can instruct The Bank of New York to vote your shares. In addition, The Bank of New York and its agents are not responsible for failing to carry out voting instructions or for the manner of carrying out voting instructions. This means that you may not be able to exercise your right to vote and there may be nothing you can do if your shares are not voted as you requested.

Notices and Reports

Upon receipt of notice of any meeting of holders of ADSs or other deposited securities, if requested in writing by the company, The Bank of New York will, as soon as practicable thereafter, mail to the owners of ADRs a notice which contains (a) such information as is contained in such notice of meeting received by The Bank of New York from the company, (b) a statement that the owners of ADRs as of the close of business on a specified record date will be entitled, subject to any applicable provisions of the Cayman Islands law and of the Memorandum and Articles of Association of the company, to instruct The Bank of New York as to the exercise of the voting rights, if any, pertaining to the amount of shares or other deposited securities represented by their respective ADSs, and (c) a statement as to the manner in which instructions may be given.

The Bank of New York will make available for inspection by registered holders at its Corporate Trust Office any reports and communications, including any proxy soliciting material, received from the company, which are both (a) received by The Bank of New York as the holder of the deposited securities, and (b) made generally available to the holders of such deposited securities by the company. However, such inspection shall not be for the purpose of communicating with registered holders of ADRs in the interest of a business or object other than the business of our company, or matters relating to the deposit agreement or the ADRs. The Bank of New York will also, upon written request, send to the registered holders copies of such reports when furnished by the company pursuant to the deposit agreement. Any such reports and communications, including any proxy soliciting material, furnished to The Bank of New York by the company will be furnished in English.

Fees and Expenses


*Persons depositing shares or*
ADR holders must pay:		For:
US$5.00 (or less) per 100 ADSs (or portion thereof)		• Each issuance of an ADS, including as a result of a distribution of shares or rights or other property
		• Each cancellation of an ADS, including if the deposit agreement terminates

US$0.02 (or less) per ADS (or portion thereof)		• Any cash payment

A fee equivalent to the fee that would be payable if securities distributed to you had been shares and the shares had been deposited for issuance of ADSs		• Distribution of securities distributed to holders of deposited securities which are distributed by the depositary to ADR holders

US$0.02 (or less) per ADSs per calendar year (if the depositary has not collected any cash distribution fee during that year)		• Depositary services

Registration or transfer fees		• Transfer and registration of shares on the shares register of the registrar of the Foreign Registrar from your name to the name of the depositary or its agent when you deposit or withdraw common shares

Expenses of the depositary		• Conversion of RMB to U.S. dollars
		• Cable, telex, and facsimile transmission expenses as are expressly provided in the deposit agreement

Taxes and other governmental charges the depositary or the custodian have to pay on any ADS or share underlying an ADS		• As necessary

Any charges incurred by the depositary or its agents for servicing the deposited securities		• As necessary

Payment of Taxes

You will be responsible for any taxes or other governmental charges payable on your ADRs or on the deposited securities underlying your ADRs. The Bank of New York may refuse to transfer your ADRs or allow you to withdraw the deposited securities underlying your ADRs until such taxes or other charges are paid. It may apply payments owed to you or sell deposited securities underlying your ADRs to pay any taxes owed and you will remain liable for any deficiency. If it sells deposited securities, it will, if appropriate, reduce the number of ADRs to reflect the sale and pay to you any proceeds, or send to you any property, remaining after it has paid the taxes.

Reclassifications, Recapitalizations and Mergers


*If we:*		Then:
• Change the nominal or par value of our shares • Reclassify, split up or consolidate any of the deposited securities • Distribute securities on the shares that are not distributed to you • Recapitalize, reorganize, merge, liquidate, sell all or substantially all of our assets, or take any similar action		The cash, shares or other securities received by the depositary will become deposited securities. Each ADS will automatically represent its equal share of the new deposited securities. The depositary may, and will if we ask it to, distribute some or all of the cash, shares or other securities it received. It may also issue new ADSs or ask you to surrender your outstanding ADRs in exchange for new ADRs identifying the new deposited securities.

Amendment and Termination

We may agree with The Bank of New York to amend or extend the deposit agreement and the ADRs without your consent for any reason. If the amendment will cause any of the following results, the amendment will become effective 30 days after The Bank of New York notifies you of the amendment:


	•	adds or increases fees or charges, except for:


	—	taxes and other governmental charges;

	—	registration fees;

	—	cable, telex or facsimile transmission costs;

	—	delivery costs or other such expenses; or


	•	prejudices any important right of ADR holders.

At the time an amendment becomes effective, you are considered, by continuing to hold your ADR, to agree to the amendment and to be bound by the ADRs and the deposit agreement as amended. An amendment to the deposit agreement may include extending such agreement.

The Bank of New York will terminate the deposit agreement if we ask it to do so. In such case, The Bank of New York must notify you at least 90 days before termination. The Bank of New York may also terminate the deposit agreement if The Bank of New York has told us that it would like to resign and we have not appointed a new depositary bank within 90 days.

After termination, The Bank of New York and its agents will be required to do only the following under the deposit agreement:


	•	collect distributions on the deposited securities;

	•	sell rights and other property; and

	•	deliver shares and other deposited securities upon cancellation of ADRs.

One year after termination, The Bank of New York may sell any remaining deposited securities by public or private sale. After that, The Bank of New York will hold the proceeds of the sale, as well as any other cash it is holding under the deposit agreement for the pro rata benefit of the ADR holders that have not surrendered their ADRs. It will not invest the money and will have no liability for interest. The Bank of New York’s only obligations will be an indemnification obligation and an obligation to account for the proceeds of the sale and other cash. After termination, our only obligations will be an indemnification obligation and our obligation to pay specified amounts to The Bank of New York.

Limitations On Obligations and Liability to ADR Holders

The deposit agreement expressly limits our obligations and the obligations of The Bank of New York, and it limits our liability and the liability of The Bank of New York. We and The Bank of New York:


	•	are only obligated to take the actions specifically provided for in the deposit agreement without negligence or bad faith;

	•	are not liable if either is prevented or delayed by law or circumstances beyond their control from performing our obligations under the deposit agreement;

	•	are not liable if either exercises discretion permitted under the deposit agreement;

	•	have no obligation to become involved in a lawsuit or other proceeding related to the ADRs or the deposit agreement on your behalf of any other party; and

	•	may rely upon any documents they believe in good faith to be genuine and to have been signed or presented by the proper party.

In the deposit agreement, we and The Bank of New York agree to indemnify each other under designated circumstances.

Requirements for Depositary Actions

The ADRs are transferable on the books of The Bank of New York, provided that The Bank of New York may close the transfer books at any time or from time to time when it deems expedient in connection with the performance of its duties. Before The Bank of New York will issue or register transfer of an ADR, make a distribution on an ADR, or process a withdrawal of shares, The Bank of New York may require:


	•	payment of stock transfer or other taxes or other governmental charges and transfer or registration fees charged by third parties for the transfer of any shares or other deposited securities;

	•	production of satisfactory proof of the identity and genuineness of any signature or other information it deems necessary; and

	•	compliance with regulations it may establish, from time to time, consistent with the deposit agreement, including presentation of transfer documents.

The Bank of New York may refuse to deliver, transfer or register transfers of ADRs generally when our books or the books of The Bank of New York are closed, or at any time if The Bank of New York or we think it advisable to do so.

You have the right to cancel your ADRs and withdraw the underlying shares at any time except:


	•	when temporary delays arise because: (1) The Bank of New York or we have closed its or our transfer books; (2) the transfer of shares is blocked to permit voting at a shareholders’ meeting; or (3) we are paying a dividend on the shares;

	•	when you or other ADR holders seeking to withdraw shares owe money to pay fees, taxes and similar charges; or

	•	when it is necessary to prohibit withdrawals in order to comply with any laws or governmental regulations that apply to ADRs or to the withdrawal of shares or other deposited securities.

The right of withdrawal may not be limited by any other provision of the deposit agreement.

Pre-Release of ADRs

In compliance with the provisions of the deposit agreement, The Bank of New York may issue ADRs before deposit of the underlying shares. This is called a pre-release of the ADR. The Bank of New York may also deliver shares upon cancellation of pre-released ADRs, even if the ADRs are cancelled before the pre-

release transaction has been closed out. A pre-release is closed out as soon as the underlying shares are delivered to The Bank of New York. The Bank of New York may receive ADRs instead of shares to close out a pre-release. The Bank of New York may pre-release ADRs only under the following conditions:


	•	before or at the time of the pre-release, the person to whom the pre-release is being made must represent to The Bank of New York in writing that it or its customer owns the shares or ADRs to be deposited;

	•	the pre-release must be fully collateralized with cash or other collateral that The Bank of New York considers appropriate; and

	•	The Bank of New York must be able to close out the pre-release on not more than five business days’ notice.

In addition, The Bank of New York will limit the number of ADRs that may be outstanding at any time as a result of pre-release to 30.0% of total shares deposited, although The Bank of New York may disregard the limit from time to time, if it thinks it is appropriate to do so.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of this offering, we will have outstanding 4,200,000 ADSs representing approximately 28.0% of our ordinary shares. All of the ADSs sold in this offering will be freely transferable by persons other than our “affiliates” without restriction or further registration under the Securities Act. Sales of substantial amounts of our ADSs in the public market could adversely affect prevailing market prices of our ADSs. Prior to this offering, there has been no public market for our ordinary shares or the ADSs, and while we have applied for the ADSs to be quoted on the Nasdaq National Market, we cannot assure you that a regular trading market will develop in the ADSs. We do not expect that a trading market will develop for our ordinary shares not represented by the ADSs.

Lock-Up Agreements

Our directors, executive officers and shareholders have signed lock-up agreements under which they have agreed, subject to some exceptions, not to transfer or dispose of, directly or indirectly, any of our ordinary shares, in the form of ADSs or otherwise, or any securities convertible into or exchangeable or exercisable for shares of our ordinary shares, in the form of ADSs or otherwise, for a period of 180 days in the case of all these persons, excluding the holders of our Series C preferred shares, and for one year in the case of the holders of our Series C preferred shares, after the date this registration statement becomes effective. After the expiration of the 180-day period, the ordinary shares or ADSs held by our directors, executive officers or shareholders may be sold subject to the restrictions under Rule 144 under the Securities Act or by means of registered public offerings.

Rule 144

In general, under Rule 144 as currently in effect, a person (or persons whose shares are aggregated) who has beneficially owned our ordinary shares for at least one year, is entitled to sell within any three-month period a number of ordinary shares that does not exceed the greater of the following:



	•	1.0% of the then outstanding ordinary shares, in the form of ADSs or otherwise, which will equal approximately 300,309 ordinary shares immediately after this offering; or


	•	the average weekly trading volume of our ordinary shares in the form of ADSs or otherwise, during the four calendar weeks preceding the date on which notice of the sale is filed with the Securities and Exchange Commission.

Sales under Rule 144 must be through unsolicited brokers’ transactions. They are also subject to manner of sale provisions, notice requirements and the availability of current public information about us.

Rule 144(k)

Under Rule 144(k), a person who is not our affiliate at any time during the three months preceding a sale, and who has beneficially owned the ordinary shares, in the form of ADSs or otherwise, proposed to be sold for at least two years, including the holding period of any prior owner other than an affiliate, is entitled to sell those shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144. Therefore, unless otherwise restricted, “144(k) shares” may be sold at any time.

Rule 701

In general, under Rule 701 of the Securities Act as currently in effect, each of our employees, consultants or advisors who purchases ordinary shares, in the form of ADSs or otherwise, from us in connection with a compensatory stock plan or other written agreement is eligible to resell such shares in reliance on Rule 144, but without compliance with some of the restrictions, including the holding period, contained in Rule 144.

Registration Rights

Upon completion of this offering, certain holders of our ordinary shares or their transferees will be entitled to request that we register their ordinary shares under the Securities Act, following the expiration of the lockup agreements described above. See “Description of Share Capital — Registration Rights.”

TAXATION

The following summary of the material Cayman Islands and United States federal income tax consequences of an investment in our ADSs or ordinary shares is based upon laws and relevant interpretations thereof in effect as of the date of this prospectus, all of which are subject to change. This summary does not deal with all possible tax consequences relating to an investment in our ADSs or ordinary shares, such as the tax consequences under state, local and other tax laws. To the extent that the discussion relates to matters of Cayman Islands tax law, it represents the opinion of Maples and Calder Asia, special Cayman Islands counsel to us. To the extent the discussion relates to matters of United States law or legal conclusions and subject to the qualification herein, it represents the opinion of Latham & Watkins LLP, our special U.S. counsel.

Cayman Islands Taxation

The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to us levied by the government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or brought within the jurisdiction of the Cayman Islands. The Cayman Islands is not party to any double tax treaties. There are no exchange control regulations or currency restrictions in the Cayman Islands.

United States Federal Income Taxation

The following discussion describes the material United States federal income tax consequences under present law of an investment in the ADSs or ordinary shares. This summary applies only to investors that hold the ADSs or ordinary shares as capital assets and that have the U.S. dollar as their functional currency. This discussion is based on the tax laws of the United States as in effect on the date of this prospectus and on United States Treasury regulations in effect or, in some cases, proposed, as of the date of this prospectus, as well as judicial and administrative interpretations thereof available on or before such date. All of the foregoing authorities are subject to change, which change could apply retroactively and could affect the tax consequences described below.

The following discussion does not deal with the tax consequences to any particular investor or to persons in special tax situations such as:


	•	banks;

	•	financial institutions;

	•	insurance companies;

	•	broker dealers;

	•	traders that elect to mark to market;

	•	tax-exempt entities;

	•	persons liable for alternative minimum tax;

	•	persons holding an ADS or ordinary share as part of a straddle, hedging, conversion or integrated transaction;

	•	holders that actually or constructively own 10% or more of our voting stock; or

	•	persons holding ADSs or ordinary shares through partnerships or other pass-through entities.

Prospective purchasers are urged to consult their tax advisors about the application of the United States Federal tax rules to their particular circumstances as well as the state and local and foreign tax consequences to them of the purchase, ownership and disposition of ADSs or ordinary shares.

The discussion below of the United States federal income tax consequences to “U.S. Holders” will apply if you are the beneficial owner of ADSs or ordinary shares and you are


	•	a citizen or resident of the United States;

	•	a corporation or partnership organized under the laws of the United States, any State or the District of Columbia;

	•	an estate whose income is subject to United States federal income taxation regardless of its source;

	•	a trust that (1) is subject to the supervision of a court within the United States and the control of one or more United States persons or (2) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a United States person.

If you are not described as a U.S. Holder, you will be considered a “Non-U.S. Holder.” Non-U.S. Holders should consult the discussion below regarding the United States federal income tax consequences applicable to Non-U.S. Holders.

The discussion below assumes that the representations contained in the deposit agreement are true and that the obligations in the deposit agreement and any related agreement will be complied with in accordance with the terms. If you hold ADSs, you should be treated as the holder of the underlying ordinary shares represented by those ADSs for United States federal income tax purposes.

U.S. Holders

Taxation of Dividends and Other Distributions on the ADSs or Ordinary Shares

Subject to the passive foreign investment company rules discussed below, the gross amount of dividends paid with respect to the ADSs or ordinary shares, generally will be included in your gross income as ordinary income on the date of receipt by the depositary, in the case of ADSs, or by you, in the case of ordinary shares, but only to the extent that the distribution is paid out of our current or accumulated earnings and profits. For this purpose, earnings and profits will be computed under United States federal income tax principles. The dividends will not be eligible for the dividends-received deduction allowed to corporations in respect of dividends received from other U.S. corporations. To the extent that the amount of the distribution exceeds our current and accumulated earnings and profits, it will be treated first as a tax-free return of your tax basis in your ADSs or ordinary shares, and to the extent the amount of the distribution exceeds your tax basis, the excess will be taxed as capital gain.

Dividends paid in RMB will be included in your income as a U.S. dollar amount based on the exchange rate in effect on the date of receipt by the depositary, in the case of ADSs, or by you, in the case of ordinary shares, regardless of whether the payment is in fact converted into U.S. dollars at that time. If you do not receive U.S. dollars on the date the dividend is distributed, you will be required to include either gain or loss in income when you later exchange the RMB for U.S. dollars. The gain or loss will be equal to the difference between the U.S. dollar value of the amount that you include in income upon receipt of the dividend and the amount that you receive when you actually exchange the RMB for U.S. dollars. The gain or loss generally will be ordinary income or loss from United States sources. If we distribute to you non-cash property, you will include in income an amount equal to the U.S. dollar equivalent of the fair market value of the property on the date that it is distributed.

Under recently enacted legislation, with respect to non-corporate taxpayers for taxable years beginning after December 1, 2002 and before January 1, 2009 such dividends may be taxed at the lower applicable capital gains rate provided that (1) the ADSs or ordinary shares are readily tradable on an established securities market in the United States, (2) we are not a passive foreign investment company (as

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discussed below) or a foreign personal holding company (as discussed below) for either our taxable year in which the dividend was paid or the preceding taxable year, and (3) certain holding period requirements are met. You should consult your tax advisors regarding the availability of the lower rate for dividends paid with respect to our ADSs or ordinary shares.

Dividends will constitute foreign source income for foreign tax credit limitation purposes. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends distributed by us with respect to the ADSs or ordinary shares will be “passive income” or, in the case of certain U.S. Holders, “financial services income.”

Taxation of Disposition of Shares

Subject to the passive foreign investment company rules discussed below, you will recognize taxable gain or loss on any sale, exchange or other taxable disposition of an ADS or ordinary share equal to the difference between the amount realized (in U.S. dollars) for the ADS or ordinary share and your tax basis (in U.S. dollars) in the ADS or ordinary share. If the consideration you receive for the ADS or ordinary share is not paid in U.S. dollars, the amount realized will be the U.S. dollar value of the payment received. In general, the U.S. dollar value of such a payment will be determined on the date of receipt of payment if you are a cash basis taxpayer and on the date of disposition if you are an accrual basis taxpayer. However, if the ADSs or ordinary shares are treated as traded on an established securities market and you are either a cash basis taxpayer or an accrual basis taxpayer who has made a special election, you will determine the U.S. dollar value of the amount realized in a foreign currency by translating the amount received at the spot rate of exchange on the settlement date of the sale. The gain or loss generally will be capital gain or loss. If you are an individual who has held the ADS or ordinary share for more than one year, you will be eligible for reduced rates of taxation. The deductibility of capital losses is subject to limitation. Any such gain or loss that you recognize will generally be treated as United States source income or loss.

Passive Foreign Investment Company

We believe that we are not a passive foreign investment company for United Sates federal income tax purposes and do not expect to become a passive foreign investment company in the future. A non-U.S. corporation is considered a passive foreign investment company for any taxable year if either


	•	at least 75% of its gross income is passive income, or

	•	at least 50% of the value of its assets (based on an average of the quarterly values of the assets during a taxable year) is attributable to assets that produce or are held for the production of passive income.

We will be treated as owning our proportionate share of the assets and earning our proportionate share of the income of any other corporation in which we own, directly or indirectly, more than 25% (by value) of the stock.

We must make a separate determination each year as to whether we are a passive foreign investment company. As a result, our passive foreign investment company status may change. In particular, fluctuation in the market price of our ADSs or ordinary shares may result in us becoming a passive foreign investment company.

If we are a passive foreign investment company for any taxable year during which you hold ADSs or ordinary shares, you will be subject to special tax rules with respect to any “excess distribution” that you receive and any gain you realize from a sale or other disposition (including a pledge) of the ADSs or ordinary shares, unless you make a “mark-to-market” election as discussed below. Distributions you receive in a taxable year that are greater than 125% of the average annual distributions you received during the shorter of

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the three preceding taxable years or your holding period for the ADSs or ordinary shares will be treated as an excess distribution. Under these special tax rules


	•	the excess distribution or gain will be allocated ratably over your holding period for the ADSs or ordinary shares,

	•	the amount allocated to the current taxable year, and any taxable year prior to the first taxable year in which we were a passive foreign investment company, will be treated as ordinary income, and

	•	the amount allocated to each other year will be subject to tax at the highest tax rate in effect for that year and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year.

The tax liability for amounts allocated to years prior to the year of disposition or “excess distribution” cannot be offset by any net operating losses for such years, and gains (but not losses) realized on the sale of the ADSs or ordinary shares cannot be treated as capital, even if you hold the ADSs or ordinary shares as capital assets.

If we are a passive foreign investment company, you may avoid taxation under the rules described above by making a “qualified electing fund” election to include your share of our income on a current basis, or a “deemed sale” election once we no longer qualify as a passive foreign investment company. However, you may make a qualified electing fund election only if we agree to furnish you annually with certain tax information, and we do not presently intend to prepare or provide such information.

Alternatively, a U.S. Holder of “marketable stock” in a passive foreign investment company may make a mark-to-market election for stock of a passive foreign investment company to elect out of the tax treatment discussed three paragraphs above. If you make a mark-to-market election for the ADSs or ordinary shares, you will include in income each year an amount equal to the excess, if any, of the fair market value of the ADSs or ordinary shares as of the close of your taxable year over your adjusted basis in such ADSs or ordinary shares. You are allowed a deduction for the excess, if any, of the adjusted basis of the ADSs or ordinary shares over their fair market value as of the close of the taxable year. However, deductions are allowable only to the extent of any net mark-to-market gains on the ADSs or ordinary shares included in your income for prior taxable years. Amounts included in your income under a mark-to-market election, as well as gain on the actual sale or other disposition of the ADSs or ordinary shares, are treated as ordinary income. Ordinary loss treatment also applies to the deductible portion of any mark-to-market loss on the ADSs or ordinary shares, as well as to any loss realized on the actual sale or disposition of the ADSs or ordinary shares, to the extent that the amount of such loss does not exceed the net mark-to-market gains previously included for such ADSs or ordinary shares. Your basis in the ADSs or ordinary shares will be adjusted to reflect any such income or loss amounts. The tax rules that apply to distributions by corporations which are not passive foreign investment companies would apply to distributions by us.

The mark-to-market election is available only for stock which is regularly traded on a qualified exchange or other market, as defined in applicable Treasury regulations. We expect that the ADSs and the ordinary shares will be listed on Nasdaq National Market and, consequently, the mark-to-market election would be available to you were we to be or become a passive foreign investment company.

If you hold ADSs or ordinary shares in any year in which we are a passive foreign investment company, you would be required to file Internal Revenue Service Form 8621 regarding distributions received on the ADSs or ordinary shares and any gain realized on the disposition of the ADSs or ordinary shares.

Foreign Personal Holding Company

Depending on the degree of direct or indirect ownership of our shares (including shares represented by ADSs) by individuals who are U.S. citizens or residents (directly, indirectly or by attribution), we may constitute a foreign personal holding company. In general, a foreign corporation will constitute a foreign personal holding company for United States federal income tax purposes if more than 50% of the equity of the

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corporation, measured by reference to voting power or value of the corporation, is owned directly, indirectly or by attribution by five or fewer individuals who are U.S. citizens or residents and at least 60% (50% in taxable years after the corporation qualifies as a foreign personal holding company) of the foreign corporation’s income is passive income. We believe that we are not a foreign personal holding company and do not expect to become a foreign personal holding company in the future. If we were treated as a foreign personal holding company, all U.S. Holders of our shares or ADSs would be treated as receiving a dividend at the end of our taxable year in an amount equal to each such holder’s pro rata share of our “undistributed foreign personal holding company income” (very generally, all of our taxable income less a dividend paid deduction).

Non-U.S. Holders

If you are a Non-U.S. Holder, you generally will not be subject to United States federal income tax on dividends paid by us unless the income is effectively connected with your conduct of a trade or business in the United States.

You generally will not be subject to United States federal income tax on any gain attributable to a sale or other disposition of the ADSs or ordinary shares unless such gain is effectively connected with your conduct of a trade or business within the United States or you are a natural person who is present in the United States for 183 days or more and certain other conditions exist.

Dividends and gains that are effectively connected with your conduct of a trade or business in the United States generally will be subject to tax in the same manner as they would be if you were a U.S. Holder. Effectively connected dividends and gains received by a corporate Non-U.S. Holder may also be subject to an additional branch profits tax at a 30% rate or a lower tax treaty rate.

Information Reporting and Backup Withholding

In general, information reporting for U.S. Federal income tax purposes will apply to distributions made on the ADSs or ordinary shares paid within the United States to a non-corporate United States person and on sales of the ADSs or ordinary shares to or through a United States office of a broker by a non-corporate United States person. Payments made outside the United States will be subject to information reporting in limited circumstances.

In addition, backup withholding of U.S. Federal income tax will apply to distributions made on ADSs or ordinary shares within the United States to a non-corporate United States person and on sales of ADSs or ordinary shares to or through a United States office of a broker by a non-corporate United States person who:


	•	fails to provide an accurate taxpayer identification number,

	•	is notified by the Internal Revenue Service that backup withholding will be required, or

	•	fails to comply with applicable certification requirements.

The amount of any backup withholding collected will be allowed as a credit against United States federal income tax liability provided that appropriate returns are filed.

A Non-U.S. Holder generally may eliminate the requirement for information reporting and backup withholding by providing certification of its foreign status to the payer, under penalties of perjury, on IRS Form W-8BEN.

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UNDERWRITING

We, together with the selling shareholders, intend to offer the ADSs in the United States and Canada through the U.S. underwriters and elsewhere through the international managers. Merrill Lynch, Pierce, Fenner & Smith Incorporated, North Tower, World Financial Center, New York, New York 10281-1201, is acting as representative of the U.S. underwriters named below. Subject to the terms and conditions contained in the U.S. underwriting agreement among us, the selling shareholders and the U.S. underwriters, and concurrently with the sale of 2,100,000 ADSs to the international managers, we and the selling shareholders have agreed to sell to the U.S. underwriters, and the U.S. underwriters severally have agreed to purchase from us and the selling shareholders, the number of ADSs listed opposite their names below.


		Number
U.S. Underwriter		of ADSs

Merrill Lynch, Pierce, Fenner & Smith
Incorporated

U.S. Bancorp Piper Jaffray Inc.

SoundView Technology Corporation

Total

We and the selling shareholders have also entered into an international purchase agreement with the international managers for sale of the ADSs outside the United States and Canada for whom Merrill Lynch Far East Limited, 18/F Asia Pacific Finance Tower, 3 Garden Road, Central, Hong Kong, is acting as the lead manager. Subject to the terms and conditions contained in the international purchase agreement, and concurrently with the sale of 2,100,000 ADSs to the U.S. underwriters, we and the selling shareholders have agreed to sell to the international managers, and the international managers severally have agreed to purchase from us and the selling shareholders, the number of ADSs listed opposite their names below.


		Number
International Manager		of ADSs

Merrill Lynch Far East Limited